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Laws Governing Non-Profit Organisations in India: A Complete Guide for Beginners


Non-Profit Organisations (NPOs), commonly known as NGOs, charitable institutions, or voluntary organisations, form a crucial part of India’s social and development sector. They work where government machinery cannot reach or where private companies do not invest. Whether it is providing mid-day meals to children, rescuing wildlife, supporting victims of domestic violence, helping the elderly, or fighting climate change, NGOs are present everywhere. According to past reports by the CBI and Planning Commission, India has over 3.4 million NGOs, which means there is one NGO for every 400 people. With such a vast presence, it becomes extremely important to ensure that these organisations work transparently, ethically, and legally. This is why India has a strong legal framework that governs their formation, functioning, funding, and accountability.


1. What Makes an Organisation “Non-Profit”?

Before understanding the laws, it is essential to know what an NPO really is. A non-profit organisation is one that operates not to earn profits but to promote social welfare. Unlike companies, NPOs do not distribute money among founders or members. Any income they generate through donations, grants, or projects has to be used strictly for their charitable purpose. For example, if an NGO runs a school, any money it earns must directly support education and cannot be taken home by its members.


NPOs in India can be registered in three main forms:

  1. Trusts

  2. Societies

  3. Section 8 Companies

Each form has its own laws, registration process, and compliance requirements.


2. The Indian Trusts Act, 1882 – Governing Charitable Trusts

One of the oldest frameworks for non-profits in India is the Indian Trusts Act, 1882. Many long-standing religious, educational, and philanthropic institutions are registered as trusts.


How Trusts Work

A trust is based on the idea that the “author of the trust” transfers property to “trustees” who manage it for the benefit of the public. The main document is the Trust Deed, which mentions:

  • the objectives (e.g., education, health, culture)

  • how trustees are appointed

  • how funds will be used

  • rules for meetings and decision-making


Why Trusts Are Popular

  • They provide long-term stability, once created, they are difficult to dissolve.

  • They are simple to run with fewer compliance requirements compared to companies.

  • They are ideal for schools, hospitals, old-age homes, orphanages, and religious institutions.


In some states, separate laws like the Maharashtra Public Trusts Act regulate trusts more strictly to prevent misuse.


3. The Societies Registration Act, 1860 – For Community & Grassroot NGOs

The Societies Registration Act, 1860 was introduced by the British to promote literature, science, art, and charitable institutions. Today, many medium-sized and community-based NGOs register as societies.


Key Features

  • Requires minimum seven members to form a society.

  • A democratic structure with elections and governing bodies.

  • Mandatory Memorandum of Association (MOA) and Rules & Regulations.

  • Annual General Meetings (AGMs) and yearly filings are compulsory.

  • Changes in the society like name or objectives need government approval.

Societies are preferred by groups working in social justice, disaster relief, human rights, sports, culture, and community welfare.


4. Section 8 Company – The Most Professional & Transparent NGO Structure

Under the Companies Act, 2013, NGOs can register as a Section 8 Company considered the most credible structure due to strong regulatory oversight.


Why Section 8 Companies Stand Out

  • They are allowed to earn income but must use it only for charity.

  • Higher transparency due to mandatory audits, annual returns, and board meetings.

  • Trusted by corporates, international donors, and CSR agencies.

  • Can operate nationwide without needing separate state-level registrations.


Many national NGOs, skill development institutions, and research organisations choose this model because it builds donor confidence.


5. Income Tax Laws for NGOs – Ensuring Tax Exemptions and Accountability

To encourage charitable work, the Income Tax Act, 1961 provides tax benefits to NGOs.

Section 12A Registration: This exempts the NGO’s income from tax, meaning its donations and grants are not taxed by the government.

Section 80G Certificate: This allows donors to claim a 50% tax deduction on donations made to the NGO. It helps attract more donors and CSR support.

CSR Funding Eligibility: Under Section 135 of the Companies Act, big companies must spend 2% of their profits on CSR. NGOs must be 12A and 80G registered to receive these funds.

NGOs must maintain proper accounting, file yearly ITRs, and undergo audits to keep these benefits.


6. FCRA, 2010 – Regulating Foreign Funding

Foreign donations form a major part of NGO funding, especially for health, environment, education, and humanitarian work. The Foreign Contribution (Regulation) Act, 2010 (FCRA) ensures that foreign money is not misused.


Major Requirements Under FCRA

  • NGOs must apply for FCRA approval from the Ministry of Home Affairs.

  • They must open a special bank account in the SBI New Delhi Main Branch to receive funds.

  • Spending must be strictly documented.

  • Annual returns and utilisation certificates are mandatory.

  • Foreign funds cannot be used for political activities.


India has cancelled over 19,000 FCRA licenses over the years for non-compliance, showing how serious the rules are.


7. Labour Laws for NGOs – Protecting Staff Rights

NGOs employ teachers, social workers, counsellors, project managers, and volunteers. Hence, they must follow:

  • Minimum Wages Act

  • Payment of Wages Act

  • Gratuity and PF

  • Maternity Benefit Act

  • Contract Labour Regulation

  • POSH Act (for workplace harassment)

NGOs must ensure safe work environments, fair wages, employment contracts, and proper HR policies.


8. Practical Challenges Faced by NGOs in India

While the legal frameworks are strong, NGOs face several obstacles:

  • Complex paperwork and slow approval processes

  • Ever-changing FCRA rules

  • Difficulty in attracting long-term funding

  • Lack of trained staff in rural areas

  • Increasing compliance burden

A 2021 report showed that thousands of NGOs lost FCRA licenses due to late filing of returns proving the importance of compliance.


Conclusion: Strong Laws Build Trustworthy NGOs

India has one of the most detailed legal systems for non-profit governance. These laws ensure that NGOs remain accountable, transparent, and dedicated to public welfare. Whether it is forming a trust, society, or Section 8 company, understanding these legal frameworks is essential for the smooth functioning and long-term impact of any non-profit organisation. As India grows, NGOs will continue to play a vital role and strong legal compliance will ensure they serve society effectively and ethically.

 
 
 

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