Approach to Setting Up
Agenda 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
NPOs in India
NPO 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
NPO Legal Structures for NPO in India
Choice of Legislation a) Different states in India have different Trusts
Forms of Acts in force, for governing the Trusts.
NPO - Trust b) General principles of the Indian Trusts Act
1882 are applied in their absence.
General Purpose Public charitable trusts can be established for the
of Establishment following purposes:
relief of poverty
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.
Trustees A trust needs a minimum of two trustees; there is
no upper limit.
Management The management rests with the Board of Trustees.
Registration of Trust deed should be registered.
Choice of Legislation Societies are governed by Andhra Pradesh
Forms of Societies Registration Act , 2001.
NPO - General Purpose Societies are membership organizations that may
of Establishment be registered for the following purposes:
Society Charitable purpose,
Promotion of Science, Literature, Fine Arts,
Promotion of education and
Public Art Museums and Galleries.
Main Instrument The main instrument of any society is the MOA
and Rules & Regulations.
Members A Society needs a minimum of seven managing
committee members; there is no upper limit.
Management Society is managed by a Governing Council or a
Registration MOA and Rules & Regulations should be
registered with Registrar of Societies.
Choice of Legislation Sec 25 (not for profit) Company are governed by
Forms of Indian Companies Act, 1956.
NPO - Sec General Purpose A Section-25 company can be established for
of Establishment promoting:
25 company Commerce,
Charity or any other useful object
Main Instrument The main instrument of a Sec 25 Company is the
MOA and AOA.
Members A Section-25 Company needs a minimum of three
members; there is no upper limit.
Management Sec 25 companies are usually managed by Board
of Directors/ Managing Committee.
Registration License to be obtained from the Regional Director
to register a Sec 25 company and MOA & AOA
should be registered with Registrar of Companies.
Particulars Trust Society Sec-25 Company
Legislation Indian Trusts AP Societies Companies Act,
NPO – A Act, 1882 Registration Act , 1956
Summary Main Trust Deed MOA & Rules and MOA & AOA.
To be Inspector Registrar of Registrar of
Registered general of Societies. Companies.
Min. No. of Two Seven Three
Management Board of Governing Board of
Trustees Council/ Mgt. Directors/ Mgt.
Audit Audit is Audit is Audit is
Requirement compulsory compulsory compulsory
only under under Societies under the
the IT Act. Act and also the Companies Act
IT Act. and also IT Act.
Alternatives Trust Society Sec 25 Company
Registration Simple to It is simple, but Complex
to set up an Process register not as simple as
NPO…1 Management Mgt. by Mgt. may be Mgt. may be
Board of distinct from its distinct from its
Trustees. members. members.
Borrowing Only from Only from its From members
the Author Members and also from
Voting Rights Not Equal Voting Voting rights are
Applicable Rights to all proportionate to
members the share capital
Capacity to Suits can be Suits by or against Suits by and
sue/be sued instigated a society should against the
by or be filed in the company can be
against the name of the instigated against
trustees. president the company
a) Trust is the simplest of the three forms, but is too rigid as a
to set up an 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
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
ii. Incorporate Sec 25 company.
Sec 25 Company
a) An association of members can apply for grant of license
of Sec 25 under Section-25 of the Indian Companies Act 1956.
Company..1 b) A Sec 25 company can be incorporated as a Private or Public
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.
f) An association desirous of getting the status of Sec 25
of Sec 25 Company …
Company..2 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.
Generally, the following documents are annexed to the
of Sec 25 application :
Company..3 3 copies of Memorandum of Association
3 copies of Articles of Association
Declaration as per annexure V of the Companies
Regulation Act, 1956.
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.
a) The application for registration should be made to the official
of 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
Trust..1 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
e) Affidavit and consent letter should also be submitted
Tax Exemption & Tax
Tax Impact Tax Impact
of NPO NPO Donor
Donations are classified into:
• General Donations Donations are
• Specific Donations eligible for
General Donations are in the nature of under 80G &
income and are exempt subject to Sec 35(1)(ii)
conditions of Sec 11.
Specific Donations are exempt.
Income of the NPO is exempt subject
to conditions U/s 11.
The legal structure of NPO is immaterial for availing the benefits
under Income Tax Act, 1961.
Eligibility Conditions to claim exemption u/s 11:
for Tax Registration The trust must be registered with the
Exemption Commissioner of Income-Tax.
Activities The activities of the charitable trust should be
confined within India.
Application of Not less than 85% of such income shall be
Income applied for charitable purposes within the same
financial year. It can be accumulated for a
period of 5 years.
Audit If the total income before claiming exemption
exceeds Rs.1,10,000, the accounts should be
Investments Unapplied income should be invested in
specified deposits. Corpus donations are not
considered as income but as capital receipt.
Agricultural Will not form part of the Total Income for the
Income purpose of computing the application of 85% as
laid down u/s 11.
Registration Conditions for registration of a Charitable Trust U/s 12 A:
of NPO Application Application should be made in the prescribed
Under IT Form 10A.
Act Time Limit Application to be submitted within one year
from the date of creation of trust.
Prerequisite Such trust must be registered with IT
condition commissioner as per the procedure U/s 12 AA.
Audit If the total income before claiming exemption
exceeds Rs.1,10,000, Audit Report should be
filed in the prescribed Form 10B.
Effective date of Income of the Trust shall be exempt from the
exemption assessment year immediately following the
financial year in which such application is made.
Donor The following are the benefits available to Donor:
Benefits General deduction The contribution made by the donors shall be
allowed as deduction under 80G while
computing income under IT Act.
Limit of deduction Deduction 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 100% of Donations made to any institute carrying
trust for R&D R&D activity shall be exempt U/s 35 (1)(ii).
Other Benefits & Specific
Other The following benefits are available to the NPO irrespective of its
Benefits 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
d) Recognition by Income Tax Department for granting exemption
In addition to registration, a non-profit organisation engaged in
Specific certain activities might also require special license/permission.
Approvals. Some of these include (but are not limited to):
A place of work in a restricted Ministry of Home Affairs or by the
area relevant local authority
To open an office and employ The Shop and Establishment Act
To employ foreign staff FCRA registration and also obtain a
No objection Certificate. The
intended employee also needs a
A foreign NPO to set up office The RBI
Foreign contributions to NPOs are governed by FC(R)A regulations
and the Home Ministry.
NPO as a vehicle for CSR
NPO as CSR a) Corporate Social Responsibility (CSR) agenda of a corporation is
Tool 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.
Name of the Founding Activity Focus
Examples CSR arm Corporate/(s)
of CSR Dr. Reddy’s Dr. Reddy’s • Upliftment of economically
Foundation Laboratories Ltd. backward youth.
Arms of • School Community
Corporate Partnership for focusing on
Satyam Satyam Computer • Health care
Foundation Services Ltd. • Supporting education
through adopting schools.
• Environment protection
• Empowering Persons with
Infosys Infosys • Health care
Foundation Technologies Ltd. • Rural Upliftment & Social
• Learning & education
• Upliftment of
Name of the Founding Activity Focus
Examples CSR arm Corporate/(s)
of CSR Aditya Birla Aditya Birla Centre • Sustainable development
Group for Community and livelihood and
Arms of Initiatives and Rural agriculture and watershed
• Health and family welfare
• Infrastructure development
Biocon Biocon Ltd. • Providing Quality
Foundation Healthcare and Health
Bharti Bharti Airtel Ltd. • Helping underprivileged
Foundation children and young people
of our country realize their
GMR GMR Industries Ltd • Collaborates with the Govt.
Varalakshmi in promoting quality of
Foundation pre-school and school