A. Types of Organizations:
- Trusts
The public charitable trust is a potential form of not-for-profit entity in India. Normally, public charitable trusts can be established for a number of purposes, including the relief of poverty, education, medical relief, provision of facilities for recreation, and any other object of general public utility. Indian public trusts are usually irrevocable. No national law governs public charitable trusts in India, although many states (particularly Maharashtra, Rajasthan, Gujarat and Madhya Pradesh) have Public Trusts Acts.
- Societies
Societies are membership organizations, which may be registered for charitable purposes. Societies are generally managed by a governing council or a managing committee. Societies are governed by the Societies Registration Act 1860, which has been adapted by different states.
- Sec. 25 Companies
A section 25 company is a company with limited liability that may be formed for "promoting commerce, science, art, religion, charity or any other useful object," provided that no profits, if any, or other income derived through promoting the company's objects may be distributed in any form to its members.
B. Tax Laws
India's tax laws affecting NGOs are similar to the tax laws of other Commonwealth nations. These laws may have some impact on U.S. grantmakers, and thus are summarized here. India provides for exception from corporate income taxes of the income of certain NGOs carrying out specific types of activities, with unrelated business income being subject to tax under certain circumstances. India also subjects certain sales of services and goods 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 %.
Applicable Laws:
Constitution of India Articles 19(1)(c) and 30;
Income Tax Act, 1961;
Public Trusts Acts of various states;
Societies Registration Act, 1860;
Indian Companies Act, 1956, section 25;
Foreign Contribution (Regulation) Act, 1976;
Maharashtra Value Added
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Relevant Legal Forms
The right of all citizens to form associations or unions is guaranteed by the Constitution of India, Article 19(1) (c). There are three pertinent legal forms of not-for-profit entities under Indian law: trusts, societies, and section 25 companies. Many state and central government agencies have regulatory authority over these not-for-profit entities.
- Trusts
Public charitable trusts, as distinguished from private trusts, are designed to benefit members of an uncertain and fluctuating class. In determining whether a trust is private or public, the key question is whether the class to be benefited constitutes a substantial segment of the public. There is no central law governing public charitable trusts, although most states have "Public Trusts Acts.
- Societies
Societies are governed by the Societies Registration Act 1860, which is an all-India Act. Societies are similar in character to trusts, though there a few essential differences. While only two individuals are needed to form a trust, a minimum of seven individuals are required to form a society. The applicants must register the society with the state Registrar of Societies having jurisdiction in order to apply for tax-exempt status. A registration application includes the society's memorandum of association and regulations and rules. In wide-ranging, Indian citizens serve as members of the managing committee or governing council of societies, although there is no prohibition in the Societies Registration Act against non-natural legal persons or foreigners serving in this capacity.
- Companies
The Indian Companies Act, 1956, which mainly governs for-profit entities, permits certain companies to obtain not-for-profit status as "section 25 companies." A section 25 company may be formed for "promoting commerce, art, science, religion, charity or any other useful object." A section 25 company must apply its profits, if any, or other income to the promotion of its objects, and may not pay a dividend to its members. At least three individuals are required to form a section 25 company. The promoters or founders of a section 25 company must submit application materials to the Regional Director of the Company Law Board.
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