TaxTMI 
TaxTMI 
TaxTMI 
In India, there are various forms of non profit organisations are available for the promoters to choose from. The following are the types:
- Trust
- Society
- Section 8 company
1. Comparison among various forms of NPOs:
Let us compare and contrast between various features of the above listed entities with a view to provide a guidance on right kind of entity for the objectives:
Trust | Society | Section 8 Company | |
Registration requirement | Not mandatory | Mandatory u/p of Societies Registration Act | Mandatory u/p of Companies Act, 2013 |
Charter | Trust deed | Memorandum of association and Bye-laws | Memorandum and articles of association. and regulations |
Sources of funds | Trust property & Profits from business which is property of trust# | Donations and Profits from incidental business* | Grants |
Members Required | Minimum – two trustees. No upper limit. | Minimum – seven managing committee members. No upper limit. | Minimum three Members. No upper limit. |
Board of Management | Trustees / Board of Trustees | Governing body or council/managing or executive committee | Board of directors/ Managing committee |
Mode of Succession on Board of Management | Appointment or Election | Appointment or Election by members of the general body | Election by members of the general body |
Availability of Tax Breaks | If public charitable & registered under section 12A of Income Tax Act | If public charitable & registered under section 12A of Income Tax Act | If public charitable & registered under section 12A of Income Tax Act |
Ease of formation | Easy | Moderate | Difficult |
Ease of operation | Easy | Moderate | Difficult |
Regulatory controls | Easy | Moderate | Difficult |
*revenue from incidental business shall not exceed ₹ 25 lakhs if the objective is ‘Advancement of any other object of general public utility’ and no such restriction applies if objective is (i) Relief of poor; (ii) Education; (iii) Medical relief; (iv) Preservation of environment including watersheds, forests and wildlife; and (v) Preservation of monuments or places or objects of artistic or historic interest.
#profit from such business is first taxed as such and profit after tax shall be considered as contribution for intended objective.
2. Taxability:
Income of any NPO if carrying the following objectives is exempted under provisions of the Income Tax Act, 1961:
- Relief of poor;
- Education;
- Medical relief;
- Preservation of environment including watersheds, forests and wildlife;
- Preservation of monuments or places or objects of artistic or historic interest; and
- Advancement of any other object of general public utility;
The above exemption is subject to registration under section 12AA. This exemption is available only when the objectives are confined to Indian Territory. There are a few more section under which income of the NPOs is exempted which are objective specific.
Generally, all donations shall be identifiable with the donor and his details including Full name, PAN, Address etc. If details of donor are not available, the same will be treated as anonymous donations. If anonymous donations exceed excess of 5% of total receipts and ₹ 1 lakhs, such excess shall be taxable at maximum marginal rate (34.608%).
All corpus donations and capital grants are not considered as revenue receipts for taxability. To treat any donation / receipt as corpus, one needs to obtain a letter expressly station the contribution as corpus.
3. Accounts and Audit:
Accounts and audit are mandatory if the entity is registered for tax exemptions. If not, for societies and section 8 companies, maintenance of books of account and audit is mandatory.
4. Compliance with other regulations:
But for Trusts, societies and section 8 companies need to file periodic returns with respective regulator i.e. District registrar for societies and ROC for section 8 companies.
5. Foreign contributions:
Foreign contributions receipt in India are regulated under Foreign Contribution (Regulations) Act. To receive foreign contribution, the organisation shall have either prior permission or permanent registration. Also, utilisation of foreign contribution shall be reported on periodic basis.