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@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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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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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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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?
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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CSR Grants• Liable to GST if:
• brand projection
• Grant structured like service agreement (‘fees’, ‘services’, ‘consideration’, etc.)
• Aggregate turnover exceeds threshold for GST
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Services Against Grants
• Specific services to nominated staff/grantees
• Chargeable to GST if
• Aggregate turnover exceeds threshold for GST
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Renting Out Property
• GST attracted on:
• Residential property rented for commercial use
• Non-residential property rented for commercial/residential use.
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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
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Cause-Related Marketing
• Donation on sale of corporate products
• Liable to GST if:
• Aggregate turnover exceeds threshold for GST
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Benefit Dinners• Receipt from
• Sale of tables/seats
• Auction of rewards to donors
• Liable to GST
• if aggregate turnover exceeds threshold for GST
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Advertising Donor’s Name
• GST on:
• Donation received from person whose name is advertised
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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.
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