FACILITIES

INCOME TAX EXEMPTION

1. General Scheme

The Income Tax Act, 1961, which is a national all-India Act, governs tax exemption of not-for-profit entities.  Organizations may qualify for tax-exempt status if the following conditions are met: 

The organization must be organized for religious or charitable purposes; 

The organization must spend 85% of its income in any financial year (April 1st to March 31st) on the objects of the organization. The organization has until 12 months following the end of the financial year to comply with this requirement. Surplus income may be accumulated for specific projects for a period ranging from 1 to 5 years; 
The funds of the organization must be deposited as specified in section 11(5) of the Income Tax Act;  No part of the income or property of the organization may be used or applied directly or indirectly for the benefit of the founder, trustee, relative of the founder or trustee or a person who has contributed in excess of Rs. 50,000 to the organization in a financial year; The organization must timely file its annual income return; and The income must be applied or accumulated in India. However, trust income may be applied outside India to promote international causes in which India has an interest, without being subject to income tax. 

2. Corpus Donations

Corpus donations or donations to endowment are capital contributions and should not be included to compute the total income of the organization. 

3. Business Income 

Under amendments to Section 11(4A) of the Income Tax Act 1961, a not-for-profit organization is not taxed on income from a business that it operates that is incidental to the attainment of the objects of the not-for-profit organization, provided the entity maintains separate books and accounts with respect to the business.  Furthermore, certain activities resulting in profit, such as renting out auditoriums, are not treated as income from a business.  

4. Disqualification from Exemption

The following groups are ineligible for tax exemption: all private religious trusts; and charitable trusts or organizations created after April 1, 1962, and established for the benefit of any particular religious community or caste. But note that a trust or organization established for the benefit of "Scheduled Castes, backward classes, Scheduled Tribes or women and children" is an exception; such a trust or organization is not disqualified, and its income is exempt from taxation.

B. Value Added Tax
                India subjects certain sales of goods and services to VAT, with a fairly broad range of exempt activities. The rates range from 4 percent to 12 percent, with most goods and services taxed at 8 percent. sAn entity (including a public charitable trust) is liable under the VAT Act if its sales/purchase turnover in the previous year exceeded Rs.500,000. The threshold is lower, Rs.100,000, for importers. 
Several other tax laws have now merged into VAT, including Sales Tax Act, Motor Spirit Taxation Act, Purchase Tax on Sugarcane Act, and Transfer of Right to Use Act. 

C. Tax Deduction for Donors 

The Income Tax Act, section 80G, sets forth the types of donations that are tax-deductible.  The Act permits donors to deduct contributions to trusts, societies and section 25 companies.  Many institutions listed under 80G are government-related; donors are entitled to a 100% deduction for donations to some of these government funds.  Donors are generally entitled to a 50% deduction for donations to non-governmental charities.  Total deductions taken may not exceed 10% of the donor's total gross income. 

The following are examples of governmental charities listed in section 80G, contributions to which entitle the donor to a 100% deduction:  the Prime Minister's National Relief Fund; the Prime Minister's Armenia Earthquake Relief Fund; the Africa (Public Contributions – India) Fund; and the National Foundation for Communal Harmony. 

As to those entities not specifically enumerated in section 80G, donors may deduct 50% of their contributions to such organizations, provided the following conditions are met: the institution or fund was created for charitable purposes in India; the institution or fund is tax-exempt; the institution's governing documents do not permit the use of income or assets for any purpose other than a charitable purpose; the institution or fund is not expressed to be for the benefit of any particular religious community or caste; and the institution or fund maintains regular accounts of its receipts and expenditure. Note that donations to institutions or funds "for the benefit of any particular religious community or caste" are not tax-deductible.  A not-for-profit organization created exclusively for the benefit of a particular religious community or caste may, however, create a separate fund for the benefit of "Scheduled castes, backward classes, Scheduled Tribes or women and children."  Donations to these funds may qualify for deduction under section 80G, even though the organization, as a whole, may be for the exclusive benefit of only a particular religious community or caste.  The organization must maintain a separate account of the monies received and disbursed through such a fund. In-kind donations are not tax-deductible under Section 80G.  Receipts issued to donors by not-for-profit organizations must bear the number and date of the 80G certificate and indicate the period for which the certificate is valid. 

The Income Tax Act contains a number of other provisions permitting donors to deduct contributions.  Under section 35AC of the Act, donors may deduct 100% of contributions to various projects, including 1) construction and maintenance of drinking water projects in rural areas and in urban slums; 2) construction of dwelling units for the economically disadvantaged; and 3) construction of school buildings, primarily for economically disadvantaged children.  Furthermore, under section 35CCA of the Act, donors may deduct 100% of their contributions to associations and institutions carrying out rural development programs and, under Section 35CCB of the Act, 100% of their donations to associations and institutions carrying out programs of conservation of natural resources.  A weighted deduction of 125% is also allowed for contributions to organizations approved under section 35(1)(ii) (a scientific research institute or a university, college or other institution) specifically for "scientific research," and for contributions made under section 35(1)(iii) specifically for "research in social science or statistical research."  

D. Reporting Foreign Contributions

Under the Foreign Contribution (Regulation) Act, 1976 (FCRA), all not-for-profit organizations in India (e.g., public charitable trusts, societies and section 25 companies) wishing to accept foreign contributions must  a) register with the Central Government; and b) agree to accept contributions through designated banks.  Furthermore, not-for-profit entities must report to the Central Government regarding foreign contributions received, within 30 days of their receipt, and must file annual reports with the Home Ministry.  The entity must report the amount of the foreign contribution, its source, the manner in which it was received, the purpose for which it was intended, and the manner in which it was used.  Foreign contributions include currency, securities, and articles, except personal gifts under Rs. 1,000 (approximately $20).  Funds collected by an Indian citizen in a foreign country on behalf of a not-for-profit entity registered in India are considered foreign contributions.  Moreover, funds received in India, in Indian currency, if from a foreign source, are considered foreign contributions. 
    
According to FC(R)A guidelines if  50% or more of the “office bearers” (not members of the board of management) of a trust/society or section 25 Company change, the organization must apply to the Home Ministry for approving the change. This approval could take as long as three to four months.  However, in the interim period, the FC(R)A registration granted to the organization would stand “suspended”.  

FC(R)A guidelines require that an organization allowed to receive funds from a foreign source, may provide funds from its FC(R)A account to another organization, only if the other organization also has clearance from the Home Ministry to receive funds from a foreign source.   If the foreign donor agency specifies in writing that the whole or part of the grant may be taken to “corpus”, the recipient organization may do so. Such corpus fund may be invested in an approved security. 

The “interest” or “dividend” generated should be accounted for as amount received by way of interest on deposit drawn out of funds received from a foreign source. In other words, even the interest/dividend received in India in Indian rupees must be disclosed in the Return Form FC-3. 


E. Customs Duty

Not-for-profit organizations involved in relief work and in the distribution of relief supplies to the needy are 100% exempt from customs duty on the import of items such as food, medicine, clothing and blankets.  Moreover, other exemptions may be available, such as an exemption from customs duty for scientific/technical equipment and components intended for research institutes.  Donors should investigate whether an exemption from customs duty is available before shipping articles to not-for-profit entities in India. 
  
F. Double Tax Treaty

India and the United States signed a double-tax treaty on September 12, 1989.  The treaty does not address issues related to charitable giving or not-for-profit entities. 

(Source: http://www.usig.org/countryinfo/india.asp)

The details for income tax exemption can be got from            http://www.mukeshraj.com/ngo.html

Funding Agencies

The list of funding agencies may be obtained from http://www.ngosindia.com/fa/A1.htm

What is foreign contribution?

Foreign contribution means the donation, delivery or transfer, made by any foreign source of any,

a) article, not given to a person as a gift, for personal use, if the market value, in India, of such article exceeds one thousand rupees;
b) currency, whether Indian or foreign;
c) foreign security as defined in clause 2(I) of the Foreign Exchange Regulation Act, 1973.

Receipt of Foreign Contribution.

The provisions of the Foreign Contribution (Regulation) Act, 1976 regulate the receipt of foreign contribution in the country. The Foreign Contribution (Regulation) Rules, 1976 contain the various forms prescribed for this purpose.

Receipt of Foreign Contribution during 2000-2001

•  22,924 associations stood registered under FCRA as on 31st March 2001. FCRA means Foreign Contribution Regulation Act
• Each NGO receiving foreign funds must have FCRA Registration In order to ensure that foreign funds do not go to terrorist supported organisations or any such elements, the FCRA is given by the Home Ministry and not the Finance Ministry Attention participants : If any of your customer from any foreign country wants to donate funds to an NGO in India, the recipient NGO must have FCRA
•  638 associations were granted prior permission to receive foreign contribution during 2000-2001. 14,598 associations filed returns for 2000-2001.
•  The receipt of foreign contribution during 2000-2001 amounted  to Rs 4535.23 crores.  This is 15.56% more than the amount received in the previous year (Rs 3924.63 crores).

Causes with largest amount received

Rural Development : Rs 547.74 crores
Health Care & Family Welfare : Rs 432.98 crores
Relief for natural calamities : Rs 339.77 crores
       
http://www.westgodavari.org/NGO/WHATISNGO.asp

E-NGO Program

A website for the wlfare of NGos. www.ngogateway.org, It currently has more than 700 NGOs collaborating through it. A brief PowerPoint presentation also showing some of the screens can be accessed at http://www.ngogateway.org/ngo/handle/1/975.  Besides other benefits, the platform converts information filled in a simple form, (http://www.ngogateway.org/component/option,com_comprofiler/Itemid,0/task,registers/) into a website (e.g. http://www.ngogateway.org/samraksha).  Hence, NGOs can easily have their free web-sites and manage the content without any technical training.

"NGO Gateway" seeks to empower the NGO sector through Networking and Capacity Building by leveraging internet technologies. An e-communion to foster collaboration amongst NGOs working in the area of HIV and related issues, it also addresses capacity building by aggregating and hosting information and tools by the community for effective programming and management. What makes the initiative unique is the opportunity it provides NGOs to participate as equal partners, directly managing their content, based on mutual trust.
After logging-in the NGO can publish information on its events, activities, reports etc. besides several other benefits like being on the mailing list for receiving all UNAIDS publications. Participation on the NGO Gateway is completely free.

The NGO Gateway uses two free open source wares. The community space built on Joomla, and a knowledge repository built onSpace(http://www.ngogateway.org/ngo/ ). We are at the second phase of the development of the Gateway, to cover all health related areas (later perhaps all areas) and also to work in Indian languages. As you would see from the browse by District function, you can also identify and engage with an NGO locally in your place of stay if you would like to mentor one for using ICTs.

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