Finance for Non Finance Staff

Role of Finance & Accounts in an NGO

You can read the information below in over 15 languages! Simply use the translation tool in the top-left corner of the screen to select your preferred language, including অসমীয়া, বাংলা, ગુજરાતી, हिन्दी, ಕನ್ನಡ, മലയാളം, मराठी, মৈতৈলোন্, नेपाली, ଓଡ଼ିଆ, ਪੰਜਾਬੀ, संस्कृतम्, தமிழ், తెలుగు, and اُردُو.

Objectives of an NPO

Change - The New Norm for NPOs

Types of Resources an NPO uses

Main Functions of an NPO

Financial Management

Finance Function in an NPO

Difference between Accounting & Finance though used interchangeably: Accounting looks Back while Finance looks Forward!

3 key roles of Finance function in an NPO

  1. Enable Value Creation
  2. Shape Value Creation
  3. Narrate Value Creation

Role of Finance Function in NPO

Enables Value Creation through

  1. Planning:

    • Financial Resources for operations

    • Financial sustainability

    • For Controls (Framework)-Polici

  2. Forecasting-long term and short term

    • Budgets-organisation and programs/projects

    • Fund flows

    • Operating Cash

  3. Resource Allocation: manpower, material, money

    • Banking

    • Treasury & cash management

    • HR, Goods and services procurement as per policy and prevalent laws

    • Inventory management-slow moving, waste, loss

    • Asset management-depreciation, obsolescence, loss etc

  4. Recording:

    • a. Book keeping i.e. recording transactions

    • Accounting i.e. summarisation, analysis and interpretation of financial data

    • Closing and reconciling-bank, vendor, employee, grant etc

Role of Finance Function in NPO

SHAPES value creation through

  1. Performance Measurement and Management

    • Budget monitoring (budget variance analysis) - organisation, projects

    • Measuring Value for money (VFM) - ratios

    • Return (social return) on investment (SROI), Social impact audit

  2. Monitoring Controls

    • Budgetary (realignment, reallocation)

    • Adherence to policies and procedures for Internal control

    • Audits and assurances-statutory, internal donor, Govt

    • Monthly MIS-Financial, Program

  3. Facilitator - support on finance to all other functions

NARRATES the value creation through

  1. Financial reporting

    • Donors - periodic FR, annual audited UC, supporting fundraiser with financial data

    • Govt bodies - IT, FCRA, Registering agency, EPF, ESI, TDS, GST

    • Board/top management - financial health

  2. Focal point with external stakeholders on institutional matters

    • obtaining statutory approvals

    • financial assessment by donors, govt etc.

Role of Non Finance Staff in Financial Matters

Please note: Information is for reference only. Read our disclaimer here.

Grant Management

You can read the information below in over 15 languages! Simply use the translation tool in the top-left corner of the screen to select your preferred language, including অসমীয়া, বাংলা, ગુજરાતી, हिन्दी, ಕನ್ನಡ, മലയാളം, मराठी, মৈতৈলোন্, नेपाली, ଓଡ଼ିଆ, ਪੰਜਾਬੀ, संस्कृतम्, தமிழ், తెలుగు, and اُردُو.

What is a Grant?

Exchange Transaction vs Grant

Understanding above for grant contract is crucial otherwise contributions maybe considered as exchange transactions inviting GST and TDS implications and also charitable status maybe jeopardised.

Grant Management

The Grand Management Process

Grant Management Life Cycle

Principles of grant management

Fund Accounting

NGOs follow Fund Accounting for managing grants:

Features:

Type of funds for NPOs

Grant word is not comprehensively defined in Indian laws, referred to as Voluntary contribution/donation (VC) in Income Tax law. FC under FCRA and CSR fund under CSR law.

ICAI has classified funds for NPOs in its Technical Guide on Accounting for NPOs:

  1. Unrestricted funds: Funds with no specific restrictions on use (purpose)/time
    • Corpus (acknowledged in IT law)-non-refundable, non reducible, reinvestment obligation.
    • Corpus only
      • when specific donor direction that it be treated as corpus by donor
      • not income but capital per IT Act
      • to be invested in section 11(5) modes of investment
      • considered application when replenished
      • not application if given to another charity. Corpus income shown in I&E.
    • Donations i.e. no obligations attached, a gift
    • Designated/earmarked funds-appropriated and set aside for specific purpose/future, self imposed by management and not binding in law for NPOs
    • General funds-surplus/deficit transferred from I&E which are not designated. Free reserves
  2. Restricted funds: funds with conditions/restrictions
    • Project/program grants-to be utilized as per terms and conditions of award, Restriction-by purpose and by time. There could be other conditions/restrictions. Principle of fund based accounting
    • Endowment: fund amount cannot be utilized, only income utilized for general/specific purpose as per donor stipulation. The recipient owns it but does not control it.
    • Restricted funds maybe
      • Permanent restriction
      • Temporary restriction: restricts use for a certain period or meeting objectives after which it becomes unrestricted.
Format of financial statements as per ICAI

BALANCE SHEET AS AT _________________________________________

SOURCES OF FUNDS (LIABILITIES)

Schedule Current Year Previous Year

Corpus Fund/General Fund/Designated Funds

TOTAL

APPLICATION OF FUNDS (ASSETS)

TOTAL

Significant Accounting Policies and Notes on Accounts

Net Assets

Format of financial statements as per ICAI

Name of Entity ______________________________________

INCOME AND EXPENDITURE ACCOUNT FOR THE PERIOD/YEAR ENDED __________

INCOME Schedule Schedule Current Year Previous Year

TOTAL (A)

EXPENDITURE

TOTAL (B)

Excess of Income over Expenditure (Surplus) or excess of Exp over Income (Deficit)(A-B) (Net Income in for profit entity)

Significant Accounting Policies and Notes on Accounts

Accounting for grant recognition by NGOs in India

Practise followed as per convention-no legal directive:

Option 1: Gross grant treated as income
Option 2: Gross grant routed through Balance Sheet only-asset and liability side settled
Option 3: Grant treated as income to the extent of expenditurewhile unutilised grant is a liability--hybrid method

Recipient, Sub-recipient and Vendor

Recipient is the organization receiving the grant, sometimes called the Prime recipient because it has full responsibility for grant funds. The document evidencing this arrangement is grant contract

Sub-recipient is involved in substantive activities of the award project. The recipient passes on some or all of its duties to the sub-recipient called sub award. All the terms and conditions from the grant award flow down to sub-recipients through a document evidencing it called sub grant contract

Vendor/service provider provides goods/services to the recipient to accomplish project’s purposes. Selected terms and conditions might be passed through to the vendor. The document evidencing is a goods/service contract

Cost-Key concepts

Cost-amount spent to acquire an asset

Expense-amount spent on regular operations

Natural expense head-WHAT (type of expense) the funds are being spent on-salary, rent, hotel accommodation etc

Furcation expense head- WHY (purpose of expense) the funds are being spent

Cost - Key concepts

NPOs should follow functional expense head for presenting reports, that is what is the basis for their constitution and work. Broadly the functional heads are two-Program/service delivery and Support/Admin & General

Costs for a project for NGO

Understanding and computing direct and shared cost crucial for correct and realistic budget formulation

Common cost be reviewed every year within the purview of common cost policy

Total cost for a project:

Institutional/Management cost/indirect cost if permitted basis donor grant management policy to address contingency/create a reserve

Other types of cost

Capital & Revenue cost:

Fixed and Variable Costs:

Cost Principles in grant budgeting for NPOs

Costs budgeted for a project grant should be

Budget basics

A budget is estimation of revenue and expenses over a specified future period, usually the project period for a grant.

It is financial plan (blueprint) of the project plan. One need to budget the plan and not vice versa

Budget is a Planning (align with objectives)Tool, Control (within policy framework) Tool, Compliance (ceiling) Tool and Mirrors the Financial Report

A budget covers quantitative, qualitative and cost aspects.

The purpose of budget is to:

Pre requisites

Types of Budgets: Activity budget

Activity based budget as the name suggests, covers the costs required for implementing a project activity.

In ABB, one looks at resources required for completing an activity and the resources cost

For example, if project strategy is to build capacity of civil society leaders, workshops is an activity. Workshops costs would be towards hiring resource persons, booking a venue, transportation cost, food, lodging and materials and handouts.

Illustration: Activity Budget for Conducting a Workshop

Particular of Expense Rate per unit No of Units Total in Rs

Trainer Fees

@ Rs 1000 per day

3 days

3,000

Venue

@ Rs 500 per day

3 days

1,500

Rental for Furniture

@ Rs 500 per day

3 days

1,500

Rental for Equipment

@ Rs 100 per day

3 days

300

Catering Exp for Lunch and tea two times

@ 100 per person

55 persons X 3 days = 165

16,500

Conveyance paid to

attendees

@Rs 50 per person per day

50 attendees x 3 days = 150

7,500

Printing of handouts

@ Re 1 per page

50pages x 50 copies = 2500 pages

2,500



Grand Total

32,800

Line Item Budget

Illustration: Line Item Budget

Expenses Unit # of Units Unit Rate ($) Costs ($)
Human Resources 
CEO Per day 3 350 1050
Trainer Fees Per day 2 200 400
Subtotal Human Resources


1450





Travel
Trainer Airfare Per Person 1 300 300
Participant Transportation Per Person 30 10 300
Subtotal Travel


600





Equipment and Supplies



Materials and hand-outs  Per Person 30 15 450
Subtotal Equipment and Supplies


450





Other costs, Services



Venue Per day 2 300 600
Catering Per Person 30 15 450
Subtotal Other costs, Services








Subtotal


3550
Overhead (10%)


355
TOTAL


3905

Other Types of Budget

  1. Incremental budget: Next year’s budget prepared by making marginal changes to the current year’s budget. The current budget is used as a base to which incremental assumptions are added or subtracted from the base amounts to determine new budget amounts.
  2. Value Proposition Budgeting focuses on allocating the ideal amount of financial resources that provides the highest value to the customer. Another name for Value Proposition Budgeting is Priority Based Budgeting or value based budgeting.
  3. Zero-based budgeting (ZBB) based on efficiency and need at that point rather than budget history. Formulation starts from scratch that only includes operations and expenses essential, no expenses are automatically added to the budget.
  4. Performance based budget (PBB) considers input of resources and the output of services. The goal is to link funding to results delivered, thus called Outcome based budgeting
  5. Fixed Budget: not modified for variation in actual activity and costs.
  6. Flexible budget: budget changes in response to activity level and costs
Budget Justification Note

Balanced, Surplus and Deficit budgets

A balanced budget is a e budgeting process where total expected revenues are equal to total planned spending.

A budget deficit occurs when expenditures surpass revenue.

A budget surplus means there is additional money to spend at the end of the accounting period

Budget Monitoring & Budgetary Control

Budget Monitoring is the process:

Budgetary Control is the process to:

Interest apportionment
  1. With a single bank account for multiple projects, interest apportionment for reporting to donor has to be made as per well defined method
  2. Interest apportionment not applicable for dedicated bank account
  3. Interest can be additive or deductive from grant as specified in grant agreement.
HR cost allocation
Robust Grant Monitoring System

Grant monitoring is a process to measure/review performance during grant period. It assesses physical & financial progress, identify risks and corresponding mitigation measures, ensure that funds are used as intended and programs achieve desired outcomes and impact.

Important Tools and Process:

Grant Contract - General Conditions

Grant Contract - General Conditions

Grant Contract - General Conditions
Grant Contract - Operational Conditions
Treatment of interest

Please note: Information is for reference only. Read our disclaimer here.

Overview of Financial Statements of NGOs

You can read the information below in over 15 languages! Simply use the translation tool in the top-left corner of the screen to select your preferred language, including অসমীয়া, বাংলা, ગુજરાતી, हिन्दी, ಕನ್ನಡ, മലയാളം, मराठी, মৈতৈলোন্, नेपाली, ଓଡ଼ିଆ, ਪੰਜਾਬੀ, संस्कृतम्, தமிழ், తెలుగు, and اُردُو.

Need for Financial Reporting Framework for NGOs

Components of Accounting Framework as per Technical Guide

  1. Elements of financial statements: Identify and define the items that should be considered as income, expenses, assets and liabilities in NPOs.
  2. Principles for recognition of items: These principles lay down the timing of recognition (when) in the financial statements.
  3. Principles of measurement: These lay down at what amount items should be recognised.
  4. Presentation and disclosure principles: These explain the manner of presentation and disclosures required.

Note: 1, 2 and 3 are sector-neutral (not different for NPOs and for profit entities), while presentation and disclosure differ for the two sectors.

Accounting Terms

Assets

These are resources or items that the NGO owns Assets have future economic value that can be measured and can be expressed in monetary terms. Examples include investments, cash, inventory, accounts receivable, land, supplies, equipment, buildings and vehicles.

Three categories:

  1. Fixed Assets

  2. Investments

  3. Current Assets

Liabilities

These refer to the legal financial obligations or debts that NGOs incur during business operations. They are settled over time through the transfer of economic benefits such as money, services or goods. Liabilities include payables, loans, accrued expenses, provisions.

Two types:

  1. Long term

  2. Short term

Equity/Capital, Net Assets

Refers to the amount of money that is required to return to its shareholders after all assets are liquidated and all liabilities paid off.

Equity capital is not returned to founders/promoters in NGOs

Revenue/Income

Refers to income that an NGO generates for/on its normal operations i.e. grants, donations, interest etc.

Expenses

Expenses refer to the costs of operations that for profit incur to generate revenue. In NPOs, income is received for making expenses normally. Common expenses include employee wages, payments to suppliers, equipment depreciation and factory leases.

What is a financial statement?

Financial statement is a collection of summary-level reports about an organization's financial results, position and cash flows.

Financial statements include:

  1. balance sheet as at the end of the financial year,
  2. income and expenditure account during the financial year,
  3. Receipt & payment (cash flow) statement during the financial year and
  4. Accounting Policies (principles for preparing the financial statement based on Accounting Standards) and explanatory notes

These come with Auditor Report with its opinion on the TFV of financials statements

BS, I&E, R&P

Key Points for Preparation of Financial Statement

MRL and ML

Management Representation Letter (MRL) is issued by the client (Auditee/NGO) to the auditor in writing as part of Audit Evidence. Management takes responsibility for the complete and accurate information provided to auditor to provide TFV. This document during the audit clarifies the separation of responsibilities of the auditor and auditee (management).

Management Letter (ML) is a letter sent from auditors to Governing Board advising them of findings indicating control weaknesses identified during the audit, and suggestions to remedy these. It is an outcome of the audit process. The Board is supposed to respond to the observations and confirm compliance within a timeframe

Maintaining Books of Accounts for NGOs

Books of accounts & other documents:
The specified books of accounts shall include

  1. Record of all the projects and institutions run by the organisation
  2. Record of income of the organisation during the previous year
  3. Record of application out of the income during the year
  4. Record of specified application out of the income of preceding years
  5. Record of voluntary contribution with a specific direction to form Corpus
  6. Record of contribution received under 80G(2)(b) being treated as corpus
  7. Record of Loans and Borrowings
  8. Record of properties held by the organisaiton
  9. Record of specified persons, as per section 13 (3) of the Act
  10. Any other document

Bookkeeping Guidelines

  1. Form of keeping books of accounts and documents: Kept in written form or electronic form or digital form or printouts or any other form of electromagnetic data storage device.

  2. Place of maintaining books of accounts and other documents: shall be kept and maintained at its "registered office“. If the accounts are maintained other than the registered office or at various project locations, intimate Assessing Officer in writing, giving full address of the other places supported by resolution of the board

  3. Period for which books of accounts & other documents should be kept: Kept and maintained for a period of ten years from the end of the relevant assessment year

    • Organisation having income subject to section 11(4) and 11(4)(a) to maintain separate set of books of account of such income in line with the provision under Income Tax Act.

Accounting Standards

AS-1: Disclosure of Accounting Policies

Fundamental assumptions: Going concern, Consistency, Accrual.

Considerations in selection of accounting policies to reflect true and fair view of the financial statement 
a. Prudence: Profits are not anticipated but recognized when realized. Provision is made for all known liabilities and losses even though the amount cannot be determined with certainty and represents only as an estimate.
b. Substance over Form: The accounting treatment and presentation of transactions and events in financial statements should be governed by their economic substance and not merely by the legal form.
c. Materiality: Financial statements should disclose all “material” items, i.e. items the knowledge of which might influence the decisions of the user of the financial statements.

AS-1 Points to Remember
AS-10: Accounting for Fixed Assets

  1. Gross and net book values of fixed assets at the beginning and end of an accounting period showing additions, disposals, acquisitions and other movements;

  2. Expenditure incurred on account of fixed assets in the course of construction or acquisition; and

  3. Revalued amounts, the method adopted, the nature of indices used, the year of any appraisal made and whether an external valuer was involved

AS-13: Accounting for Investments

Overview on Procurement, Contracts, Fixed Assets & Inventory Management for NGOs

You can read the information below in over 15 languages! Simply use the translation tool in the top-left corner of the screen to select your preferred language, including অসমীয়া, বাংলা, ગુજરાતી, हिन्दी, ಕನ್ನಡ, മലയാളം, मराठी, মৈতৈলোন্, नेपाली, ଓଡ଼ିଆ, ਪੰਜਾਬੀ, संस्कृतम्, தமிழ், తెలుగు, and اُردُو.

Procurement

Key aspects of procurement

  1. Need assessment as per program and budget in grant contract
  2. Cost (value for money through price discovery/competition) & Operational Efficiency (desired outcome/impact)
  3. Accountability & Transparency (ethical considerations/at arm’s length)
  4. Adherence to Procurement Policy & procedures-Tool of Risk Management
  5. Supplier diversity-strategic sourcing
  6. Team effort-appropriate segregation of duty and authorisation hierarchy
  7. Contract Management
  8. Record keeping of procurement process
  9. Continuous improvement in procurement policy and procedures as organisation evolves

Procurement Categories

Purchase of:

5 Rights of strategic Procurement

  1. “Right Quality”
  2. “Right Quantity”
  3. “Right Place”
  4. “Right Time”
  5. “Right Price”

Procurement Policy

A procurement policy is a set of guidelines and rules that govern how an organization acquires goods and services. It outlines the procedures, standards, and principles that guide the procurement process, ensuring it's fair, transparent, and compliant with legal requirements. it's a roadmap for procurement activities within an organization.

Benefits of a Policy
Procurement Policy elements

Procurement Cycle (Process)

  1. Precise technical specs
  2. Budget for item
  3. Constitute Purchase committee
  4. Research potential suppliers
  5. Solicit Bids
  6. Bid evaluation and vendor selection
  7. Issue Purchase Order/ Contract Signing
  8. Receipt & Inspection
  9. Invoice Approval & payment

Procurement process

S.No Step Who Remarks
1. Purchase Requisition Program coordinators/concerned staff members Document to capture all details eg. Explanation of the purpose, quantity, quality of goods/services , timeframe, project, budget availability etc.
2. Forwarding and approval of requisition By Requisitioner Approval by Program Manager.
3. Calling bids/Request for Proposal (RFP) Admin Department

Either from approved list or eligible vendors. Bids must be written. Oral bids with justification allowed upto a certain threshold or through web-search.

Understand the concepts- Open bid, Sealed bid/Closed bidding, Public bidding, Two stage bidding
4. Comparative Analysis, Negotiation with vendor and final offer, final vendor selection and terms of purchase finalized. L1 is the vendor generally selected Procurement Committee (PC) All deliberations and justifications for vendor selection are captured in the MoM of PC/ Justification note for vendor selection.
5. Issue of Purchase order or contract Approved by appropriate authority as per authorization matrix PO contains relevant details and terms and conditions of procurement. Delivered to and acknowledged by vendor. In case of services, work order or contract issued. For small value contracts, email order confirmation sent and acknowledged by vendor. Advance payment.
6. Receiving the goods or services Physical delivery received, by the admin in-charge. User will certify the qualitative aspects whether the goods / services are as per terms and conditions of the PO/ Work order. Receipt documented and entry in Stock Register/Fixed Asset Register. In case of works contracts, the running bills checked with MBs and material consumed etc. and certified by Technical Specialists.
7. Payment & Issue Accountant Admin Payment and correctly record in the books of accounts Issue goods and obtain receipt
For consultancy assignment, a formal contract is entered into with the consultant, documenting all the terms and conditions including deliverables and deadlines, payments, deduction of tax at source.
For general use items like stationary, office supplies etc., the procurement committee may consider obtaining quotations for annual rate contract.

Procurement Methods

Single Sourcing

While competitive bidding is prescribed manner of procurement, there are occasions when procurement cannot
be done following competitive process. These are

Sole source procurement to be suitably documented by way of a “Sole Source Justification Note” and approved by
competent authority.

Exception to Policy

Approved Vendor List/Vendor Database

Maintaining Audit Trail

Contract Management

Why contract management
What is a contract

Contract Management

Contract management in procurement is the process of administering contracts with vendors through their entire lifecycle, from creation to completion, renewal or termination.

It ensures that both the organization and the supplier fulfill their contractual obligations thereby mitigating risks and maximizing the value in the procurement.

Clauses of an agreement/contract

Payment clause
Period for completing delivery clause and liquidated damages
Warranty clause
Termination Clause: notice period etc. in case party is not interested to continue or default in deliverables.

Clauses of an agreement or contract
Practical Aspects while signing contracts
  1. Read and understand the contract and details before signing
  2. Avoid vagueness
  3. Seek professional advice.
  4. Encaser there are no violations of law of land.
  5. Know your rights and duties.
  6. Should be in writing and complete in all respects.
  7. Remember signing the contract makes it legally enforceable

Fixed Assets Management

What is Fixed Assets

Policy on Fixed Assets

Inventory Management

Inventory and procedures

Inventory procedure

Overview on Key Statutory Laws for NGOs (Income Tax, FCRA, CSR)

You can read the information below in over 15 languages! Simply use the translation tool in the top-left corner of the screen to select your preferred language, including অসমীয়া, বাংলা, ગુજરાતી, हिन्दी, ಕನ್ನಡ, മലയാളം, मराठी, মৈতৈলোন্, नेपाली, ଓଡ଼ିଆ, ਪੰਜਾਬੀ, संस्कृतम्, தமிழ், తెలుగు, and اُردُو.

Income Tax Law

Types of entities that can register as charitable institutions in India

For charitable activity, the following entities can be constituted: 

  1. Society
  2. Trust
  3. Not for profit Company

While above entities have separate incorporation laws, the various laws apply uniformly for all above type of entities

Definition of Charitable purpose in Income Tax

Section 2(15) "charitable purpose" includes

Types of registration/approval of charitable institutions under IT Act

  1. 1.10(23C) (approval category merged with 12A)

  2. 12A, 12AB (earlier 12AA now deleted)

  3. 10(46) - a body notified by Central/State Govt

  4. 80G Approval for tax deductions to donors for Donations

  5. S 35 - approved institutions for scientific research etc

New regime of income tax registration for charitable organisations wef 1.4.2021

Re-registration/approval of existing charitable entities u/s 10(23C), 12A,35 and 80G approval for a period of 5 years, thereafter renewal once every 5/10 years.

Perpetual registration abolished.

Department wants to have database and better control/monitoring on charitable institutions which has been fragmented and decentralised until now.

Types of Approvals:

  1. Re-registration/Revalidation of existing registered entities-5 years
  2. Registration for Unregistered entities
  3. Provisional registration for new entitites-3 years
  4. Provisional to Normal registration for new entities- Total period 5 years
  5. Modification of objects clause for 12A entities(within 30 days)
  6. If registered/approved both under 10(23C) and 12A, then retain one, the other becomes inoperative
  7. Renewal of registration after 5 years

Renewal of 12AB registration and 80G approval of existing registered entities

Department’s power to cancel registration

Power to cancel registration for Specified Violations i.e.

Reference by AO to CIT/PCIT who shall pass order within 6 months from quarter in which notice was issued.

Accreted Income or Exit Tax-Section 115TD of IT Act (1.6.2016)

  1. Accreted income is excess of fair market value of assets over total liabilities of Trust. Accreted income is taxed at MMR
  2. Conditions when 115TD triggered:
    • 12AB registration cancelled
    • Modification of objects not applied for regn/not in line with condition of registration and application rejected
    • Merged into an entity not with similar objects and not registered under 12AB
    • failure to transfer assets upon dissolution to another 12AB/10(23C) entity within 12 months
    • Newly added: non registration, non renewal, non conversion of provisional to regular registration wef 1.10.24

Merger of charities with same/similar objects-new section 12AC specifying situations of merger when accreted tax will not be applicable effective 1.4.2025.

Anonymous donation-Section 115BBC of IT Act

  1. For charitable trust, if name and address of donor is not known, it is anonymous donation.
  2. Not applicable to Religious Truss or charitable cum religious trust except where the donation is for an educational or medical institution
  3. Tax payable 30%. Threshold: Rs.1 lakhs or 5% of total donation received whichever is higher.

Statement of Section 80G donation

Section 80G approval can be applied even if charitable status benefit taken which was not allowed earlier- effective 1.10.2024

Section 80G-Receipt/certificate of donation

Form 10BE Submission Guidelines

Code of Taxation for Charitable Institutions 

Chapter III-Incomes which do not form part of total income:

  1. Section 11: Income from property held under trust for charitable or religious purposes.
  2. Section 12: Income of trusts or institutions from voluntary contributions for charitable and religious purpose.
    • Section 12A – Conditions for applicability of sections 11 and 12
    • Section 12AA – Procedure for Registration-repealed 
    • Section 12AB – Procedure for Registration under new regime
  3. Section 13: Section 11 not to apply in certain cases.

Section 11: Income from property held for charitable or religiouspurposes.

Section 11(1): the following income shall not be included in the total income of the previous year of the person in receipt of the income—

Deemed Application-1 year

As per clause (2) of Explanation to section 11(1):

Note: If DA amount is not utilized in the next year then the amount will be taxable income. 

Accumulation-5 years

As per section 11(2):
If, in the previous year, the income applied to charitable or religious purposes in India falls short of 85% of the income derived during that year from property held under trust, but is accumulated or set apart for application to such purposes in India, such income shall not be included in the total income of the previous year provided the following conditions are complied with, namely:—

Disallowance of Cash/bearer Payments

Section 40(A)(3) provides that “Where the assessee incurs any expenditure in respect of which a payment or aggregate of
payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account [or through such other electronic mode as may be prescribed], exceeds Ten Thousand Rupees, no deduction shall be allowed in respect of such expenditure”.

Note:

Disallowance for Non Deduction of Tax at Source

Section 40(a)(ia) provides that 'Where the assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B then the amount equal to 30% of expenditure shall not be allowed at the time of computation of
Income’

Note:

Section 12A

Conditions for Applicability of Section 11 & 12

The provisions of section 11 and section 12 shall not apply in relation to the income of any trust or institution unless organization is registered under section 12AB

Books of accounts of the organization have been maintained and audited by the Chartered Accountant

Organization has furnished the return of income for the previous year in accordance with the provisions of sub-section (4A) of section 139, within the time allowed under that section.

Section 13 of Income Tax

Section 13(1): Section 11 not to apply when

Section 13(6): The exemption under section 11 or section 12 shall not be denied in relation to any income, other than the income referred to in sub-section (2) of section 12, by reason only that such trust has provided educational or medical facilities to persons referred to in sub section 3.

S. 115BBC-Tax @30% on denied income for 13(1)© and 13(1(d) violations. 2. Penalty for providing unreasonable benefits to specified persons- s 271AAE penalty equal to amount of benefit in first year and twice for subsequent year

Section 13(3): List of persons

a. the author of the trust or the founder of the institution.

b. any person who has made a substantial contribution to the trust or institution, that is to say, any person whose total contribution up to the end of the relevant previous year exceeds fifty thousand rupees; increased to Rs.1 lakhs in that PY and aggregate Rs.10 lakhs during lifetime of institution by Finance Act 2025

c. where such author, founder or person is a Hindu undivided family, a member of the family;

cc. any trustee of the trust or manager (by whatever name called) of the institution;

d. any relative of any such author, founder, person, member, trustee or manager as aforesaid;

e. any concern in which any of the persons referred to in clauses (a), (b), (c), (cc) and (d) has a substantial interest. "relative", in relation to an individual, means—

a. spouse of the individual;
b. brother or sister of the individual;
c. brother or sister of the spouse of the individual;
d.any lineal ascendant or descendant of the individual;
e. any lineal ascendant or descendant of the spouse of the individual;
f. spouse of a person referred to in sub-clause (b), sub-clause (c), sub-clause (d) or sub-clause(e) g. any lineal descendant of a brother or sister of either the individual or of the spouse of the individual

Section 13(2): The income or the property of a trust deemed to have been used or applied for the benefit of a person referred to in 13(3)

Objective of TDS

  1. Regular Inflow of Revenue for Government
  2. Checking of Tax Evasion
  3. Widening of Tax Base

Tax deducted at source(TDS) and Tax Collected at source (TCS)

TDS Sections

192 – TDS on Salary

Income Tax Slab

Tax Rate

Up to ₹2,50,000*

Nil

₹2,50,001 to ₹5,00,000

5% of total income exceeding ₹2,50,000

₹5,00,001 to ₹10,00,000

₹12,500 + 20% of total income exceeding ₹5,00,000

Above ₹10,00,000

₹1,12,500 + 30% of total income exceeding ₹10,00,000

Income Tax Slab FY 25-26

Tax Rate

Up to Rs 4 lakh

Nil

Rs 4 lakh to Rs 8 lakh

5%

Rs 8 lakh to Rs 12 lakh

10%

Rs 12 lakh to Rs 16 lakh

15%

Rs 16 lakh to Rs 20 lakh

20%

Rs 20 lakhs to Rs 24 lakhs

25%

Rs 24 lakh and above

30%

194 C – Payments to Contractors

Tax is to be deducted at source:

TDS Rate:

Limit:

Section 194 C includes:

194 J – TDS on Fees for Professional or Technical Services

Threshold Exemption Limit:

In Finance Act, increased to Rs. 50,000 in a FY

Particulars

TDS Rate

Professional Fees

10%

Technical Fees

2%

Payment to call center operator (Domestic Co. only)

2%

Professional services means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession notified by the Board for the purposes of section 44AA or of this section.

Fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial (running or management of business), technical (technical expertise) or consultancy (advisory) services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or which would be income chargeable under the head “Salaries”.

194 I – Rent

Particulars

Rate of TDS

Renting of machinery / plant / equipment

2%

Renting of land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings

10%

In Finance Act 2025, increased to Rs. 6 lakh in aggregate and not more than Rs. 50k per month

Section 195

FCRA

"foreign contribution" means donation, delivery or transfer (directly or through another person) by any foreign source (i) of any article (not FC if gift for personal use not exceed Rs. 1 lakh in market value),(ii) of any currency, whether Indian or foreign (iii) of any security as defined in section 2 (h) of SCRA, 1956

Explanation to S.2 - Any amount received by way of fee (including fees charged by an educational institution in India from foreign student) or towards cost in lieu of goods or services rendered by such person in the ordinary course of his business, trade or commerce within/outside India or any contribution received from an agent of a foreign source towards such fee/cost shall not be FC.

Deemed FC -interest, rent, pass-on now prohibited also FC.

Foreign Hospitality

"person" includes -
Prohibited person

Foreign source includes:

(i) Government/agency of foreign Government; (ii) international agency (excluding UN, IBRD, IMF or agency Central Government may notify (list of 117 entities as per portal); (iii) a foreign company; (iv) a corporation, not being a foreign company, incorporated in a foreign country (v) a multi-national corporation (vi) an Indian company with >50% of share capital held by: a. foreign Government; b. foreign citizens; c.corporations incorporated in a foreign country; d. trusts, societies or other associations of individuals (whether incorporated or not) in a foreign country; e. foreign company; [provided that such company shall not be a foreign source (FEMA compliant)-Finance Act 2016] (vii) a trade union in a foreign country (viii) a foreign trust/foundation mainly financed by a foreign country; (ix) a society, club or other association or individuals formed or registered outside India; (x) a foreign citizen

Administrative expenses

The following shall constitute administrative expenses:- (i) salaries, wages, travel expenses or any remuneration realised by the Members of the Executive Committee or Governing Council of the person; (ii) all expenses towards hiring of personnel for management of the activities of the person and salaries, wages or any kind of remuneration paid, including cost of travel, to such personnel; (iii) all expenses related to consumables like electricity and water charges, telephone charges, postal charges, repairs to premise(s) from where the organisation or Association is functioning, stationery and printing charges, transport and travel charges by the Members of the Executive Committee or Governing Council and expenditure on office equipment; (iv) cost of accounting for and administering funds; (v) expenses towards running and maintenance of vehicles; (vi) cost of writing and filing reports; (vii) legal and professional charges; and (viii) rent of premises, repairs to premises and expenses on other utilities: Provided that the expenditure incurred on salaries or remuneration of personnel engaged in training or for collection or analysis of field data of an association primarily engaged in research or training shall not be counted towards administrative expenses: Provided further that the expenses incurred directly in furtherance of the stated objectives of the welfare oriented organisation shall be excluded from the administrative expenses such as salaries to doctors of hospital, salaries to teachers of school etc.

FCRA Architecture for regulated entities
Reporting Forms
Major reasons for rejection of registration/renewal
Rejection of Renewal application

CSR Law

S.135 of Companies Act, 2013- Corporate Social Responsibility (CSR)

  1. Every company having net worth of rupees five hundred crore or more, or turnover of rupees one thousand crore or more or net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, at least one independent director.
  2. The Board's report under section 134 shall disclose the composition of the Corporate Social Responsibility Committee.
  3. The Corporate Social Responsibility Committee shall, —
    (a) formulate and recommend to the Board, a Corporate Social Responsibility Policy which shall indicate the activities to be undertaken by the company as specified in Schedule VII;
    (b) recommend the amount of expenditure to be incurred on the activities referred to in clause (a); and
    (c) monitor the Corporate Social Responsibility Policy of the company from time to time.
  4. The Board of every company referred to in sub-section (1) shall, - (a) after taking into account the recommendations made by the Corporate Social Responsibility Committee, approve the Corporate Social Responsibility Policy for the company and disclose contents of such Policy in its report and also place it on the company's website and (b) ensure that the activities in CSR Policy of the company are undertaken by the company.
  5. The Board of every company referred to in sub-section (1), shall ensure that the company spends, in every financial year, at least two per cent. of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its Corporate Social Responsibility Policy. CSR is from Profits, cannot be claimed as business expenditure, therefore no tax benefit as clarified by MCA but courts have granted 80G benefit for CSR spends. Provided that the company shall give preference to the local area and areas around it where it operates, for spending the CSR amount. Provided further that if the company fails to spend such amount, the Board shall, in its report made under clause (o) of sub-section (3) of section 134, specify the reasons for not spending the amount.

Section 135 of Companies Act-changes effective Jan 2021

Definition of CSR Activities permitted in Schedule VII under Section 135 of Companies Act 2013. Exclusion

Note: corpus donation, kind contribution, activities outside India except training of sports person is not CSR.

Modes for undertaking CSR

CSR activities can now be undertaken by the company itself or through a. Section 8 company/registered public trust/registered society-12A and 80G registration under Income-tax Act, 1961 established by the company, either singly or along with any other company, or b. Section 8 company/registered trust/registered society established by the government; or c. Any entity established under an Act of Parliament or a state legislature; or d. Section 8 company/registered public trust/registered society, (with 12A and 80G registration under Income-tax Act, 1961) having an established track record of at least three years in undertaking similar activities.

CSR Committee
Visibility and UC by CFO
Impact assessment

CSR, ESG and Sustainability overlap

Reporting compliance for corporates on Sustainability

Journey of ESG (BRSR) in India

9 Principles in NGRBC

  1. Principle 1: Ethical Business Conduct - Businesses should conduct and govern themselves with integrity and in a manner that is ethical, transparent and accountable.

  2. Principle 2: Product Responsibility - Businesses should provide goods and service in a manner that is sustainable and safe.

  3. Principle 3: Employee Welfare - Businesses should respect and promote the well- being of all employees, including those in their value chains.

  4. Principle 4: Stakeholder engagement - Businesses should respect the interests of and be responsive to all its stakeholders.

  5. Principle 5: Human Rights - Businesses should respect and promote human rights.

  6. Principle 6: Environmental Responsibility - Businesses should respect and make efforts to protect and restore the environment.

  7. Principle 7: Public Policy Engagement - Businesses, when engaging in influencing public and regulatory policy, should do so in a manner that is responsible and transparent.

  8. Principle 8: Inclusive Growth - Businesses should promote inclusive growth and equitable development.

  9. Principle 9: Consumer engagement - Businesses should engage with and provide value to their consumers in a responsible manner.

BRSR

Overview on Key Policies for NGOs

You can read the information below in over 15 languages! Simply use the translation tool in the top-left corner of the screen to select your preferred language, including অসমীয়া, বাংলা, ગુજરાતી, हिन्दी, ಕನ್ನಡ, മലയാളം, मराठी, মৈতৈলোন্, नेपाली, ଓଡ଼ିଆ, ਪੰਜਾਬੀ, संस्कृतम्, தமிழ், తెలుగు, and اُردُو.

What are Organisation Policies?

Key aspects of Organisation Policies

Need for Policies

Policy vs Procedure

Who formulates Policies

Who implements policies

Finance Policy

Contents

Authorisation Matrix
Accounting
Payments and advances
Budgeting
Procurement
Travel Policy
Risk Management

HR Policy

Contents

Recruitment
Compensation and benefits
Leave & Holiday Policy
Performance Management
Prevention of Sexual Harassment at workplace

Other Policies

Overview of Risks & Internal Controls for NGOs

You can read the information below in over 15 languages! Simply use the translation tool in the top-left corner of the screen to select your preferred language, including অসমীয়া, বাংলা, ગુજરાતી, हिन्दी, ಕನ್ನಡ, മലയാളം, मराठी, মৈতৈলোন্, नेपाली, ଓଡ଼ିଆ, ਪੰਜਾਬੀ, संस्कृतम्, தமிழ், తెలుగు, and اُردُو.

Why understand risk management

Why risk management is important for NGOs

  1. Financial stability

  2. Operational Efficiency

  3. Compliance Management

  4. Disciplined Planning

  5. Informed decision making

  6. Reputation Management

  7. Building Trust

  8. Improved communication

  9. Long term Impact and Sustainability

Key concepts

Types of risks facing Organisations

Risk Management Policy- Need

Risk Management Process

  1. Risk universe analysis

  2. Risk identification

  3. Risk assessment-risk assessment matrix based on likelihood and impact of identified risks

Risk Management Process

Internal Controls

Benefits and Limitations of Internal Controls

Benefits

  1. Collision

  2. Human error

  3. Unforeseen circumstances

Key Areas of Internal Controls in NGOs

1. Internal Controls around Legal compliance

2. Internal Controls around Governance

3. Internal controls around Budgeting & Budgetary Controls

4. Internal controls around Grants and other Incomes

5. Expenditure

Internal Controls around Expenditure

6. Internal Controls around Purchase/Procurement

Internal Controls around Purchase/Procurement

7. Human Resource (HR) Management

Controls around HR Management

8. Fixed Assets & Inventory Management

Controls around Fixed Assets & Inventory

9. Internal Controls around Accounting

10. Controls around Cash and Bank transactions

11. Controls around Donor compliances

12. Controls around Program Implementation

Concept of Efficiency & Effectiveness

  Efficiency Effectiveness
Definition Efficiency refers to the act of performing activities with minimum wastage of time and optimum usage of resources timely and without error. Effectiveness is the extent to which someone or something is successful towards meeting the desired outcome.
Focuses on Doing the assigned task in a correct way Doing the assigned task accurately
Focuses on Efficiency is focused on the inputs and outputs Effectiveness is focused on the extent to which work is done and the end result achieved
Effort oriented Efficiency is effort oriented on operations Effectiveness is effort oriented on strategy
Time oriented Efficiency is time oriented Effectiveness is not time oriented

Deep dive into Audit & Assurance, Fraud, Ethics, Accountability and Transparency

You can read the information below in over 15 languages! Simply use the translation tool in the top-left corner of the screen to select your preferred language, including অসমীয়া, বাংলা, ગુજરાતી, हिन्दी, ಕನ್ನಡ, മലയാളം, मराठी, মৈতৈলোন্, नेपाली, ଓଡ଼ିଆ, ਪੰਜਾਬੀ, संस्कृतम्, தமிழ், తెలుగు, and اُردُو.

Audit and Assurance

Audit is a Systematic and independent primarily through examination of financial records, transactions, and processes to assess their accuracy, transparency, and compliance with regulations and accounting standards. It is conducted through an internal team or an independent external auditor. The goal is to ensure the reliability and validity of financial information and to identify errors/irregularities and the effectiveness of internal controls.

Assurance is a broader term which enhances the reliability and credibility of various information, including financial and non-financial data, processes, and systems. Audit is a subset of Assurance. Assurance provides independent and professional opinions that reduce information risk (risk from incorrect information) and is broader than Audit. Examples include financial statement audits, compliance audits, IT audit, Sustainability audit and assessments of internal controls and systems.

Rationale for Audits

Financial audits and reviews are governance tools used to provide assurance to an organization's management and stakeholders that the resources and assets of the organization are being used judiciously for the intended purpose. Audit is a more thorough examination that provides a higher level of assurance, while a review is a less intensive assessment with a lower level of assurance. An audit verifies the accuracy of financial statements while a review assesses whether the statements seem plausible and reasonable.

The priority of the audit process is to improve continuously on implementation of the financial and administrative policies. It is also an opportunity to identify and enhance financial control and documentation. A second priority of the auditing process is to identify gaps in policies or areas with substantial control risks so that such risks may be mitigated. A third priority is to establish independently that all personnel are handling financial affairs with integrity.

Why we don't like audits

How should we approach Audit

Types Of Audits

Audit Process

Audit process - Before Audit begins

Audit Process - During Audit

Audit Process - After Audit

Awareness of Fraud

What constitutes fraud?

Types of Fraud

Corruption is misuse of entrusted power for personal or organizational gains.

Fraud Red flags Examples

Fraud Red flags

Ethics, Accountability and Transparency

Ethics

Ethics is a system of moral principles. Ethics means doing the right thing in the right way. Ethics is concerned with what is good for individuals, organizations and society (moral philosophy). Organizations should have written Code of Ethics covering all legal and contractual requirement of Ethics under various laws. Need to share and train employees and other stakeholders the Code of Ethics. It includes corporate governance, bribery, discrimination, fiduciary responsibilities.

Common examples of Ethical violation usually protected by Law

Ethical Dilemma

Ethical Dilemma is a situation where individual is faced with a choice between two or more courses of action, none of which are morally ideal or completely satisfactory. In these dilemmas, a decision must be made but all options potentially violate ethical principles. The challenge lies in weighing competing moral values and making a choice that minimizes harm and adheres to ethical standards.

Examples:

Accountability

Accountability means being held responsible for actions and the outcomes. It involves taking ownership of responsibilities, delivering on commitments, and being transparent about both successes and failures. It fosters a culture of Ownership. An organization's accountability extends to its members, employees, and community. In a wider sense, accountability implies a willingness to be judged on performance, to accept and learn from mistakes. Accountability builds trust of stakeholders.

Examples of Accountability

Tranparency

Business transparency is the process of being open, honest, and straightforward about various company operations and sharing such information with all stakeholders concerned. It involves disclosing relevant details, decisions, and actions in a clear and accessible way, fostering trust and accountability. This can include sharing financial data, operational processes, company goals, and even challenges. A transparent workplace can lead to stronger teams, increased engagement, and a culture of trust and respect. It builds trusts of all stakeholders. Transparency builds business advantage. It helps informed decisions.

Examples of Business Transparency