Social Enterprises: Trustworthy practices by Kedar Sabne

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A deeper look @ Trustworty activities ..- Kedar sabne

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Comparison between Trust, Society and Section 25 CompanyPublic Trust Society Section 25CompanyStatute/Legislation Public Trusts Act like the Bombay Public of 1860Trusts Act of 1950Societies Registration Act Companies Act of 1956Jurisdiction of the Act Concerned State Concerned State where registered Authority Charity Commissioner Registrar of Societies Registrar of CompaniesRegistration As Trust As Society (and by default Memorandum andalso as Trust in Articles of AssociationMaharashtra and Gujarat)MOA & MOA

Let’s understand the difference ..

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Stamp Duty Trust deed to be executed on non judicial stamp paper of prescribed value NO stamp paper required for Memorandum and rules and regulations No stamp paper for Memorandum and AOA Number of persons needed to registerMinimum two with no upper limit Minimum seven with no upper limitMinimum seven with no upper limitBoard of Management Trustees Governing Body or /Council / Executive CommitteeBoard of Directors /Managing or Managing CommitteeMode of succession Usually by appointment Usually by election of the general bodyUsually election by members of general body

Let’s understand the difference ..

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Taxation • Common treatment on tax

• Section 11 – exemption for charitable and religious purpose ( relief to poor , education, preservation of environment ,monuments , advancement of objectives for general public utility *

* if it involves commercial activity then would not fall within the definition of charitable purpose

• This also means that charitable Trust can also carry on business , provided the business is incidental to attainment of objectives and separate books are maintained ( Hospital, printing press)

• Section 12 – income from property held under trust

• Section 13 - income not to be spent for the benefit of certain persons - Author , relatives and people having substantial interest which also means NGOs can pay salaries at par with industry to retain talent and run the organisation to its employees

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Income in form of voluntary contributions towards corpus Income derived from property and other than corpus voluntary contributions Income from business incidental Income in form of capital gains from sale of capital asset

What is exempted

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Establishment expenseRepayments of loan Revenue or capital expenditure Payment of taxesDonation to other Trust

Application of income

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Audit is mandatory in case the income is above the exemption limit

Audit requirements

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Tax exemption for a research association u/ s 10(21) for eligible scientific research Explore this exemption to get corporate funding

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 As we already know that an NGO can avail income tax exemption by getting itself registered and complying with certain other formalities, but such registration doesn't provide any benefit to the persons making donations. The Income Tax Act has certain provisions which offer tax benefits to the "donors". All NGOs should avail the advantage of these provisions to attract potential donors. Section 35AC is one of such sections.

REGISTRATION UNDER SECTION 35AcThe Central Government approves certain NGOs and notifies them as eligible for project or schemes for the purposes of section 35AC. If an NGO succeeds in getting such an approval for its projects then it stands a very good chance of mobilising funds from the corporate and the business sector. Business houses making contribution to such approved projects are allowed the benefits of deducting such contribution as expenditure.

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80 G – A sourcing gate way

CONDITIONS TO BE FULFILLED UNDER SECTION 80G

For approval under section 80G the following conditions are to be fulfilled :i) the NGO should not have any income which are not exempted, such as business income. If, the NGO has business income then it should maintain separate books of accounts and should not divert donations received for the purpose of such business.

ii) the bylaws or objectives of the NGOs should not contain any provision for spending the income or assets of the NGO for purposes other than charitable.

iii) the NGO is not working for the benefit of particular religious community or caste.

iv) the NGO maintains regular accounts of its receipts & expenditures.

v) the NGO is properly registered under the Societies Registration Act 1860 or under any law corresponding to that act or is registered under section 25 of the Companies Act 1956.

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