Compliance Challenges for NPOs - bcasonline.org › files › res_material › res...Filing COVID-19...

@DevelopAid Doubts? [email protected] 20-June-2020

Compliance Challenges for NPOs

Webinar: 20-June-2020

Organised by:

BCAS - Mahavan - STCI - DevelopAid

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mailto:[email protected]


CAUTION

DevelopAid believes in socially responsible and accountable philanthropy. It supports compliance with both letter and the spirit of the law. This presentation

is meant to help improve understanding of the law. Please do not use this understanding to bypass the law.

Material presented here is for general information and is provided gratis,  without any warranties. Please confirm independently with your advisers  

before taking a decision.

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FCRA

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Prior Permission• Apply at fcraonline.nic.in in Form FC-3B

• Fees Rs. 3,000

• Prior Permission > Rs. 50 lakh?

• Documentation requirement

• Prior Permission for new NGOs?

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Registration

• Apply at fcraonline.nic.in in FC-3A

• Fees Rs. 5,000

• Available after three years

• Program spending >Rs.10 lakh over last three years

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Cancellation• For violation

• For non-compliance

• Can be compounded

• For not receiving any funds over two years

• FC assets managed by District Magistrate

• Can’t apply for PP/Registration for three years

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Renewal• Apply at fcraonline.nic.in 6-12 months before expiry of

registration

• Most expire on 31-Oct-2021, some expire earlier

• No extension for COVID yet

• Fees Rs. 1,500

• Affidavit from each Trustee/Board Member/Chief Functionary

• Stamp paper can be bought, signed and notarised anywhere in India

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mailto:[email protected]://fcraonline.nic.in

Doubts? [email protected]@DevelopAid 20-June-2020

AffidavitPro-forma ‘AA’ 

(See rules 9, 12, Forms FC-3A, FC-3B and FC-3C) [To be executed by each office bearer and key functionary and member individually on non-judicial stamp paper of Rs.10/- and attested by a Notary Public or 1st Class Magistrate]

AFFIDAVIT I, ........... (name of the Chief Functionary/Chairperson/President/Secretary/Chief Executive Officer/Managing Director/office bearer/key functionary/member), son/daughter/wife of ....................................., resident of ............................, having Aadhaar Number /PAN Card Number / Passport Number / Voter Identity Card Number/Driving Licence Number .................. as the identity proof, do hereby solemnly affirm on oath that I am the Chief Functionary/Chairperson/President/Secretary/Chief Executive Officer/Managing Director/office bearer/key functionary/member (whichever is applicable) of ......................................................... (name of the applicant organisation), having its registered office at .............................................. , and I have read and understood the provisions of the Foreign Contribution (Regulation) Act, 2010 (42 of 2010) and confirm that all the conditions as stipulated in sub-section (4) of section 12 of the said Act are fulfilled. 2. I also undertake to report to the Secretary to the Government of India, Ministry of Home Affairs, Foreigners Division (Foreign Contribution Regulation Act Wing) about any violation of the provisions of sub-section (4) of section 12 of the Foreign Contribution (Regulation) Act, 2010 by the applicant organisation or any of its members or office bearers or key functionaries that comes to my knowledge. 3. I also understand that submission of any false or misleading information shall be punishable under the applicable law. Place:

Date: Deponent

VERIFICATION I, .................................., above named deponent do hereby verify that the contents of the aforesaid paragraphs 1 to 3 are true to the best of my knowledge and nothing has been concealed therefrom. Verified at ................................ on this the .........day of ................................. Place: Date: Deponent

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…Renewal• Make sure fees is paid

• Give correct mobile number and email ID in form

• Keep checking status at fcraonline.nic.in for any questions

• Can apply up to one year late

• Additional fees Rs. 5,000

• Stop accepting FC funds if not renewed in time

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mailto:[email protected]://fcraonline.nic.in


Fund-raising

• NRIs living abroad are not foreign

• PIOs living in India are foreign

• Indian subsidiaries (of foreign companies) are foreign

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This can be FC…

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And this non-FC.

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Foreign Sources…

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No?

Company formed Outside India?

Company is subsidiary of

foreign company?

No?

Company is part of foreign MNC?

>50% shares held by foreigners?

Foreign shareholding

exceeds FDI norm?

No?

Yes

Yes

Yes

Yes

Yes

No?

No?

Fore

ign

Sour

ce

Local SourceC

ompa

nies

:  Fo

reig

n So

urce

or n

ot?



Fund-raising• Add FCRA loop for online fund-raising/crowd-

funding

• Ask donor to tick nationality first

• Send them to Indian or foreign screen

• Don’t share bank details with donors w/o deciding on their FC status

• Ask fund-raising platforms to segregate and make separate transfers

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Board• Report any Board changes within 15 days

• Don’t keep foreigners on your Board

• Avoid keeping politicians, journalists, Government Officers on your Board

• Chief Functionary shouldn’t be CF of another FCRA-NGO

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COVID & FC: Funds• Avoid transferring FC to beneficiaries, if

possible

• If you do, ENSURE receiver is not into politics, journalism, etc.

• Avoid CASH at all costs.

• DO NOT transfer FC to unpaid volunteers/villagers/others, for onward disbursement/distribution of material

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COVID & FC: Material

• Material given directly to individual beneficiaries (for their own use) exempt upto Rs. 1 lakh for each

• DO NOT distribute material through NGOs/groups who don’t have FCRA

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Filing COVID-19• Suggested filing date is 15th of each month

• For information only but also creates a record

• Don’t report work done through non-FC funds

• Report cumulative expenditure and period of support till previous cut-off-date (e.g. 30-April-2020)

• Cross check figures with Accounts Team before reporting

• Match work done with amounts

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Separate Books for FC

• Rule 11 asks for one separate set of books and records for FCRA

• NGO keeping project-wise books

• Penalty of 1 lakh or 5% of FC received

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Manual Cash Log

Tally Group Company: Lok Jagran Manch

Tally Company: LJM - FCRA

Tally Company: LJM - non-FCRA

Tally Company: LJM - Fee-based

THP Group Accounts

Ford Group Accounts

CRY Group Accounts

TATA Group Accounts

Consultancy Group Accounts

Agri-services Group Accounts

FC - General Group Accounts

General Fund Group Accounts



Mixed Fund Payments

• Make two payments

• One from FC

• Another from non-FC

• Generate two challans for PF

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Grant vs. Service Contract

• Fees etc. exempt from FCRA

• DO NOT use to bypass FCRA

• Service agreement between donor and non-FC NGO

• In ordinary course of business?

• Nature of services?

• Who derives benefit of the services?

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Watchlist Donors• 23 Donors on Watchlist

• CDC added recently

• Remittance from watchlist donors?

• Grants to companies, businesses, and individuals ?

• AccountAid Capsule 556 (R) dtd. 3-Jun-2020

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Transfers to Others• All payments in ordinary course of business

allowed

• Salaries

• Vendor payments

• Audit fees

• For donative payments

• Check FCRA registration & CREES classification

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CREES?

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Cultural Religious Economic Educational Social



Board Changes• File form FC-6E within 15 days

• Of ANY Change

• DO NOT wait for 50% threshold

• FCRA Public notice (7-Jun-19)

• Upload affidavit of each board member

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Cash Transactions

• DO NOT make payments > Rs.10,000 in cash

• Limit of Rs.2,000 on FCRA site

• Could be a typo

• Still - avoid as much as possible

• Don’t bypass by giving advances to staff

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FC-4• No place for negative balances

• Avoid inter-fund transfers (even within FC)

• Make inter-project transfer (within FC) if unavoidable to submit FC-4

• DO NOT make inter-fund transfers between FC and non-FC

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Designated Account

• For receipts and for utilising funds

• File FC-6C for change of designated account

• Continue using old account till change is approved

• DO NOT deposit non-FC or transfer funds to own non-FC account

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Utilisation Accounts• Not mandatory — optional

• File FC-6D within 15 days

• Wait for approval before using

• Inbound transfers:

• ONLY from designated FCRA account

• Add instruction via resolution while opening account

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Rent

Fees

Overheads

Travel

Board Salaries

All Staff Salary

Program Expenses

Admin Expenses

Teacher Salaries

Doctor SalariesSurveyors

TrainersAnalysts


Records/Reports

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Offence Culprit Penalty Sec. & Rule

Spending > 50% on admin NGO

Higher of 1 lakh or 5% Sec. 8, Rule 5

Not filing FC-4 / FC-1 by due date NGO

Higher of 1 lakh or 5%

Sec. 18, rule 17

Not keeping FCRA accounts / records

properlyNGO Higher of 1 lakh or 5%

Sec. 19, rule 11



Transfer of FC

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Offence Culprit Penalty Sec. & Rule

Passing on FC to unregistered NGO

NGO which transfers

Higher of 1 lakh or 10% Sec. 7

Accepting FC w/o registration or

permission

NGO which accepts

Higher of 1 lakh or 10% Sec. 11



Refunding Unspent Funds

• Banks don’t permit w/o FCRA Clearance

• FCRA doesn’t give clearance

• Solution:

• Transfer amount to another FCRA grantee of donor

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TDS Refund• TDS only from FC or non-FC

• Give relevant bank account number in ITR-7

• Composite Tax Refund

• Give non-FCRA Bank Account

• Transfer FC part to FCRA Bank later - if possible

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Income Tax

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How to lose 12A?

• Continuing non-compliance with exemption conditions

• 12A not revalidated after change of objects

• Compliance default under any law

• Fee-based receipts > 20% for some NGOs

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Grant or Service Contract?

• Vendor/service provider status

• Services provided to staff/grantees/designated beneficiaries

• Consideration?

• Implementation Services?

• Branding Clause?

• Invoices for Payment?

• TDS u/s 194C or 194J?

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The Limit

• Rs. 25 lakh p.a. upto FY 14-15

• 20% of gross annual receipts from FY 15-16

• Applicable only to rainbow activities (other useful purpose)

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Charitable Purpose

2(15)

12A Registration

80G Approval

Partial GST Exemption

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Charitable Purpose

2(15)

12A Registration

80G Approval

Partial GST Exemption

115TD

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115TD

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2 MergerMerged with a non-exempt organisation

3 DissolutionAssets gifted to non-exempt organisation

1 DefaultExemption conditions not met



Penal Tax & Payment• 42.744% tax

• On net market value of assets

• Called ‘accreted income’

• Pay tax within 14 days

• from the date of levy of tax

• Failure: 1% Interest p.m.

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Tax Renewal

• File 10A again within 30 days if objects amended

• Renew 12A, 12AA, 10(23)(C), 80G every five years

• Currently deferred till 1-Oct-20

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Section 194J• TDS @ 2% on technical services w.e.f. 1-

Apr-2020

• Not being professional services

• Royalty on sale, distribution or exhibition of films

• Professional Services - @10%

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Section 194J - COVID

• Covid Rates:

• Professional Services - 7.5%

• Technical Services - 1.5%

• Period: 14th May 2020 to 31st March 2021

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30% Disallowance

• 30% of payment disallowed

• If no tax deducted where required

• If lower tax deducted

• Effective 1-Apr-18

• Sec. 40(a)(ia), read with sec. 11, sec. 10(23C)

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Cash Payments• 100% of payment disallowed

• If payment made in cash exceeding > Rs. 10,000

• Effective 1-Apr-18

• Sec. 40(A)(3)/3(A), read with sec. 11, sec. 10(23C)

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Cash Donations

• For cash donations > Rs. 2,000

• Deduction not allowed to donor

• u/s 80G

• u/s 80GGA

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Anonymous Donations

• Restricted u/s 115BBC

• 5% of donations or Rs. 1 lakh, whichever is higher

• Tax @ 30% on excess

• Madhavi Raksha Sankalp (ITAT Mum. 2018)

• Rs. 2.42 crores from 6,500 villagers as corpus donations…

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Donor Details

• NGO must upload each donor’s name, PAN, address and amount w.e.f. 1-Apr-20

• Without this, deduction not allowed to donor

• u/s 80G

• u/s 80GGA

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Grants to Others: Purpose Mismatch

• Caruna Bal Vikas (Compassion International)

• Tax Demand of Rs. 87 crores

• Registered for Charitable Activities

• Grants to organisations with ‘religious’ objects or activities

• Treated as misuse of funds

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Tax Demands?

• ITR-7 filed and processed online

• Large tax demands raised on charities

• Mostly due to technical defaults in ITR-7

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ITR-7: Utilisation

• Utilise 85% of funds received

• In case of shortfall

• File form 9A/10 online before due date (30-Sep)

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ITR-7: Filing Sequence

• Tax Exemptions not available if return delayed beyond 30-Sep

• Return treated as defective

• 10B Audit Report filed after Tax return (before due date)?

• 10B report submitted but not accepted by client

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ITR-7: Interest Income

• Do not report as Income from Other Sources

• Include in Schedule AI only (Aggregate of Income)

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Key Person Payment• Income / property lent without security or int.

• Permitting use of FA without compensation

• Investment >5% in concern of key person

• Shree Tekchand Chandiram Trust (Bom. 1990)

• Unreasonable salary or allowances

• Services provided without charge

• Diversion of income

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GST

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GST Registration

2018-19

22,00,000

5,00,0006,00,000

20,00,000

Exempt SuppliesExportsTaxable SupplyPure Grants

Aggregate Turnover* 80+ Exem

pt Services

Agricultural SalesFD Interest

School FeesPatient Fees

Charitable activitiesTraining in Arts etc.

No GST as supply without consideration

GST Payable on Taxable supply

No GST payable (file LUT), but registration needed

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* Threshold of turnover given separately



GST Threshold ChartRs. Supply of Goods only Supply of Services or  Goods & Services

40 lakh

All of India except Arunachal Pradesh, Manipur, Meghalaya,

Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura and

Uttarakhand

-

20 lakhArunachal Pradesh, Manipur,

Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana,

Tripura and Uttarakhand

All of India except Manipur, Mizoram, Nagaland and Tripura

10 lakh - Manipur, Mizoram, Nagaland and Tripura

Any attempt at simplifying GST is doomed to failure. Consult your auditors/advisers before taking a decision.



CSR Grants• Liable to GST if:

• brand projection

• Grant structured like service agreement (‘fees’, ‘services’, ‘consideration’, etc.)

• Aggregate turnover exceeds threshold for GST



Services Against Grants

• Specific services to nominated staff/grantees

• Chargeable to GST if




Renting Out Property

• GST attracted on:

• Residential property rented for commercial use

• Non-residential property rented for commercial/residential use.



Business Brands• GST payable on:

• Large display of names, logos or brands

• Doesn’t apply to logos of non-profit donor agencies

• Promotion of business interests in public events or print/electronic media

• Business advantage to donor



Cause-Related Marketing

• Donation on sale of corporate products

• Liable to GST if:




Benefit Dinners• Receipt from

• Sale of tables/seats

• Auction of rewards to donors

• Liable to GST

• if aggregate turnover exceeds threshold for GST



Advertising Donor’s Name

• GST on:

• Donation received from person whose name is advertised



About DevelopAid

DevelopAid Foundation is a sec. 8 not-for-profit company, with a mission of enhancing public trust, accountability, financial literacy, governance, and understanding of relevant laws and regulations among philanthropic organisations and social enterprises in India.

Material presented here is for general information and is provided gratis, without any warranties. Please confirm independently with your advisers before taking a decision.

Regd. Office: 57-B, Pocket C,  Siddhartha Extension, New Delhi - 110014  

Ph.: +91-11-26345941 CIN: U74999DL2016NPL309078  www.DevelopAid.org

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