Presentation on Approach to Setting Up an NPO akasam

Agenda akasam A.Features of NPO B.Choice of Forms of NPO C.Registration Procedure to form NPO. D.Tax Exemption & Procedure of Registration E.Other Benefits & Specific Approvals F.NPO as a vehicle for CSR

Features of NPO akasam

Features of NPO akasam NPOs in India A.exist independently of the founding entity; B.are self-governed by a board of trustees or managing committee/ governing council, comprising individuals who serve in a fiduciary capacity; C.are for the “Charitable Purpose”, and D.are ‘non-profit-making’, and are prohibited from distributing profits (if any) to their own members. [ Section 2(15) of the Income Tax Act defines ‘charitable purpose’ to include ‘relief of the poor, education, medical relief and the advancement of any other object of general public utility’. ]

Forms of NPO akasam

Choice of Forms of NPO akasam Legal Structures for NPO in India Trust Society Section-25 Company

Choice of Forms of NPO - Trust akasam Legislationa)Different states in India have different Trusts Acts in force, for governing the Trusts. b)General principles of the Indian Trusts Act 1882 are applied in their absence. General Purpose of Establishment Public charitable trusts can be established for the following purposes:  relief of poverty  education  medical relief  provision of facilities for recreation, and  any other object of general public utility. Main Instrument Main Instrument is Trust Deed; where the objects and mode of management are enshrined. TrusteesA trust needs a minimum of two trustees; there is no upper limit. ManagementThe management rests with the Board of Trustees. Registration of trust deed Trust deed should be registered.

Choice of Forms of NPO - Society akasam LegislationSocieties are governed by Andhra Pradesh Societies Registration Act, General Purpose of Establishment Societies are membership organizations that may be registered for the following purposes:  Charitable purpose,  Promotion of Science, Literature, Fine Arts,  Promotion of education and  Public Art Museums and Galleries. Main InstrumentThe main instrument of any society is the MOA and Rules & Regulations. MembersA Society needs a minimum of seven managing committee members; there is no upper limit. ManagementSociety is managed by a Governing Council or a Managing Committee. RegistrationMOA and Rules & Regulations should be registered with Registrar of Societies.

Choice of Forms of NPO - Sec 25 company akasam LegislationSec 25 (not for profit) Company are governed by Indian Companies Act, General Purpose of Establishment A Section-25 company can be established for promoting:  Commerce,  Art,  Science,  Religion,  Charity or any other useful object Main InstrumentThe main instrument of a Sec 25 Company is the MOA and AOA. MembersA Section-25 Company needs a minimum of three members; there is no upper limit. ManagementSec 25 companies are usually managed by Board of Directors/ Managing Committee. RegistrationLicense to be obtained from the Regional Director to register a Sec 25 company and MOA & AOA should be registered with Registrar of Companies.

Forms of NPO – A Summary akasam Particulars TrustSocietySec-25 Company LegislationIndian Trusts Act, 1882 AP Societies Registration Act, Companies Act, 1956 Main Instrument Trust DeedMOA & Rules and Regulations MOA & AOA. To be Registered with Inspector general of Stamps. Registrar of Societies. Registrar of Companies. Min. No. of Members TwoSevenThree ManagementBoard of Trustees Governing Council/ Mgt. Committee Board of Directors/ Mgt. Committee Audit Requirement Audit is compulsory only under the IT Act. Audit is compulsory under Societies Act and also the IT Act. Audit is compulsory under the Companies Act and also IT Act.

Alternatives to set up an NPO…1 akasam Particulars TrustSocietySec 25 Company Registration Process Simple to register It is simple, but not as simple as trust Complex ManagementMgt. by Board of Trustees. Mgt. may be distinct from its members. BorrowingOnly from the Author Only from its Members From members and also from Banks and Institutions. Voting RightsNot Applicable Equal Voting Rights to all members Voting rights are proportionate to the share capital Capacity to sue/be sued Suits can be instigated by or against the trustees. Suits by or against a society should be filed in the name of the president Suits by and against the company can be instigated against the company

Alternatives to set up an NPO…2 akasam a)Trust is the simplest of the three forms, but is too rigid as a legal structure for management as it places onerous responsibility on the trustee(s) as to governance. b)Society is more flexible than trust, but does not provide much independence to its governing body in the context of decision making. c)A Sec 25 company offers more independence to its governing body, has more credibility, but is complex. The following alternatives are available to set up a NPO. i.Set up a trust initially and convert it to sec 25 company later. ii.Incorporate Sec 25 company.

Registration Procedure  Sec 25 Company  Charitable Trust akasam

Registration of Sec 25 Company..1 akasam a)An association of members can apply for grant of license under Section-25 of the Indian Companies Act b)A Sec 25 company can be incorporated as a Private or Public Limited company. c)It is exempted from having the suffix of “Limited” or “Private Limited” in its name. d)There is no requirement of minimum paid up capital. e)Any person (including partnership firm in its own capacity) can become a member of Sec 25 Company.

Registration of Sec 25 Company..2 akasam f)An association desirous of getting the status of Sec 25 Company … i.have to obtain license from the Regional Director ii.after obtaining license, the proposed company has to be incorporated with the ROC. g)For the purpose of getting license, the association need to make an application to the Regional Director (RD) of Ministry of Corporate Affairs in e-form 24A. h)Once license is granted, changes can be made to MoA & AoA, only with the prior approval of the RD. i)The license granted can be revoked by the RD at any time on grounds of non compliance with objectives of company or contravention of the act.

Registration of Sec 25 Company..3 akasam Generally, the following documents are annexed to the application :  3 copies of Memorandum of Association  3 copies of Articles of Association  Declaration as per annexure V of the Companies Regulation Act,  Declaration by prescribed person, that MOA and AOA confirms to the provisions of the Companies Act.  3 copies of details of the promoters and proposed directors of the company.  A list of names, addresses, descriptions and occupations of its directors, managers or secretary.  Also a list of other associations or companies in which they hold above positions.  Statements of grounds on which the application is made.

Registration of Charitable Trust..1 akasam a)The application for registration should be made to the official having jurisdiction over the region in which the trust is sought to be registered. b)The applicant has to affix a court fee stamp to the form and pay a very nominal registration fee which may range depending on the value of the trust property. c)Form should be signed by the applicant before the regional officer or superintendent of the regional office of the charity commissioner or a notary. d)Form should be submitted, together with a copy of the trust deed. e)Affidavit and consent letter should also be submitted

Tax Exemption & Tax Registration Procedure akasam

Tax Impact on participants of NPO akasam Tax Impact Donor NPO Donations are eligible for exemption under 80G & Sec 35(1)(ii) Donations are eligible for exemption under 80G & Sec 35(1)(ii) General Donations are in the nature of income and are exempt subject to conditions of Sec 11. Specific Donations are exempt. General Donations are in the nature of income and are exempt subject to conditions of Sec 11. Specific Donations are exempt. The legal structure of NPO is immaterial for availing the benefits under Income Tax Act, Donations are classified into: General Donations Specific Donations Donations are classified into: General Donations Specific Donations Income of the NPO is exempt subject to conditions U/s 11.

Eligibility for Tax Exemption akasam RegistrationThe trust must be registered with the Commissioner of Income-Tax. ActivitiesThe activities of the charitable trust should be confined within India. Application of Income Not less than 85% of such income shall be applied for charitable purposes within the same financial year. It can be accumulated for a period of 5 years. AuditIf the total income before claiming exemption exceeds Rs.1,10,000, the accounts should be audited. InvestmentsUnapplied income should be invested in specified deposits. Corpus donations are not considered as income but as capital receipt. Agricultural Income Will not form part of the Total Income for the purpose of computing the application of 85% as laid down u/s 11. Conditions to claim exemption u/s 11:

Registration of NPO Under IT Act akasam ApplicationApplication should be made in the prescribed Form 10A. Time LimitApplication to be submitted within one year from the date of creation of trust. Prerequisite condition Such trust must be registered with IT commissioner as per the procedure U/s 12 AA. AuditIf the total income before claiming exemption exceeds Rs.1,10,000, Audit Report should be filed in the prescribed Form 10B. Effective date of exemption Income of the Trust shall be exempt from the assessment year immediately following the financial year in which such application is made. Conditions for registration of a Charitable Trust U/s 12 A:

Donor Benefits akasam General deductionThe contribution made by the donors shall be allowed as deduction under 80G while computing income under IT Act. Limit of deductionDeduction available under 80G is to the extent of 100% / 50% of donation, subject to a maximum of “10% of Adjusted Total Income” of the donor. Contribution to trust for R&D activity 100% of Donations made to any institute carrying R&D activity shall be exempt U/s 35 (1)(ii). The following are the benefits available to Donor:

Other Benefits & Specific Approvals akasam

Other Benefits akasam The following benefits are available to the NPO irrespective of its legal structure: a)Imports for relief work and in the distribution of relief supplies to the needy are 100% exempt from customs duty. b)Exemption from customs duty for scientific/technical equipment and components intended for research institutes. c)Recognition by apex bodies in education and scientific research. d)Recognition by Income Tax Department for granting exemption U/s 12A.

Specific Approvals. akasam In addition to registration, a non-profit organisation engaged in certain activities might also require special license/permission. Some of these include (but are not limited to): Special License/Permission A place of work in a restricted area Ministry of Home Affairs or by the relevant local authority To open an office and employ people The Shop and Establishment Act To employ foreign staffFCRA registration and also obtain a No objection Certificate. The intended employee also needs a work visa. A foreign NPO to set up office in India The RBI Foreign contributions to NPOsare governed by FC(R)A regulations and the Home Ministry.

NPO as a vehicle for CSR akasam

NPO as CSR Tool akasam a)Corporate Social Responsibility (CSR) agenda of a corporation is reflective of its social conscience and commitments to the community and society at large within which it operates. b)More and more Companies have increasingly realized that it is an investment with multiple benefits for the corporate sector. c)A NPO can be used as a tool to fulfill CSR of a corporate as the objectives of NPO are similar to CSR.

Examples of CSR Arms of Corporate akasam Name of the CSR arm Founding Corporate/(s) Activity Focus Dr. Reddy’s Foundation Dr. Reddy’s Laboratories Ltd. Upliftment of economically backward youth. School Community Partnership for focusing on quality education. Satyam Foundation Satyam Computer Services Ltd. Health care Supporting education through adopting schools. Environment protection Empowering Persons with Disability Infosys Foundation Infosys Technologies Ltd. Health care Rural Upliftment & Social Rehabilitation. Learning & education Upliftment of underprivileged artists.

Examples of CSR Arms of Corporate akasam Name of the CSR arm Founding Corporate/(s) Activity Focus Aditya Birla Group Aditya Birla Centre for Community Initiatives and Rural Development Sustainable development and livelihood and agriculture and watershed development Health and family welfare Infrastructure development Biocon Foundation Biocon Ltd. Providing Quality Healthcare and Health education. Bharti Foundation Bharti Airtel Ltd. Helping underprivileged children and young people of our country realize their potential GMR Varalakshmi Foundation GMR Industries Ltd Collaborates with the Govt. in promoting quality of pre-school and school education.

Discussion Floor akasam