As discussed in previous posts, some countries have unique considerations when it comes to evaluating an organization for equivalency determination (ED). India is one such country. Indian laws pertaining to certain legal entities and tax exemptions contain provisions that mirror charity requirements in the U.S. However, unlike charities in the U.S., Indian organizations that receive foreign contributions are required by law to register in a government database. In this post, we will explore the unique nuances of Indian organizations and how they impact ED certifications.
There are several Indian legal entities that NGOsource commonly evaluates. While an organization's entity type is never determinative, NGOsource frequently certifies the following entity types.
Section 8 Companies
Section 8 of the Companies Act, 2013, governs nonprofit companies formed for the purpose of promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment, or any such other object. A Section 8 company must apply its profits, if any, or other income to the promotion of its objects, and it must prohibit the payment of any dividend to its members. The Act is federal legislation and applies to all companies in India.
Societies that are "associated for any literary, scientific or charitable purpose" are governed by the Societies Registration Act of 1860. In addition to requiring that a society be established for exclusively charitable purposes, the Act mandates that a society's assets on dissolution be transferred to another charitable society and prohibits distribution of assets to members. Societies can register at the state level, and, although similar in many respects, societies acts vary from state to state.
Charitable public trusts formed under the Maharashtra Public Trusts Act must be operated for charitable purposes, which include relief of poverty or distress, education, and medical relief. Trusts are also required to apply their income exclusively in furtherance of their charitable purposes. In addition, the Act provides safeguards to ensure that a trust's funds are not misused. For example, a trust must be monitored and supervised by the charity commissioner with which it is registered. Similar to societies, trusts can register at the state level, and trusts acts vary from state to state.
Local Entity Types
In addition to the entity types noted above, there are several laws governing local registrations in India that contain similar useful requirements. Those include the Tamil Nadu Societies Registration Act, 1975, the Andhra Pradesh Societies Registration Act, 2001, and the Karnataka Societies Registration Act, among others.
Charitable tax-exempt organizations under the Income Tax Act, 1961, are subject to numerous requirements that align with public charity requirements in the U.S. Organizations that are recognized under Section 12 of the Act are "created wholly for charitable or religious purposes" and conduct genuine charitable activities according to India's tax authorities. These organizations are prohibited from engaging in activities that constitute private inurement.
Furthermore, tax-exempt organizations under Section 80G of the Act must be "established in India for a charitable purpose" and must prohibit their governing instruments from "contain[ing] any provision for the transfer or application at any time of the whole or any part of the income or assets of the institution or fund for any purpose other than a charitable purpose." The Income Tax Department of the Government of India keeps an online database of exempted institutions, including the section under which an organization qualifies for exemption.
The controversial Foreign Contribution (Regulation) Act, 2010 (FCRA), was enacted "to regulate the acceptance and utilisation of foreign contribution or foreign hospitality." It prohibits "acceptance and utilisation of foreign contribution or foreign hospitality for any activities detrimental to the national interest. …" Enforced by the Ministry of Home Affairs, the Act applies to all Indian organizations that receive foreign contributions or aid from outside India. The Act is often criticized for being too far-reaching in its scope and arbitrary in its application. The Ministry keeps at least two databases of organizations with FCRA authorization, one searchable by state and district, and the other searchable by FCRA registration number. The Ministry also keeps a database of organizations with expired and canceled registrations.
It is important to note that an Indian organization can still qualify for equivalency even if it's not organized as one of the aforementioned entity types or does not have tax-exempt status or FCRA authorization (although this would impact an organization's ability to receive foreign funding). All organization types are eligible for equivalency if they meet the necessary organizational, operational, and, if applicable, financial requirements.
- Income Tax Act, 1961
- Companies Act, 2013 (PDF)
- Societies Registration Act of 1860 (PDF)
- The Maharashtra Public Trusts Act (PDF)
- Foreign Contribution (Regulation) Act, 2010
- Foreign Contribution (Regulation) Rules, 2011 (PDF)
- Online Portal of FCRA Services, Ministry of Home Affairs
- Civic Freedom Monitor: India, The International Center for Not-for-Profit Law (ICNL)
- Nonprofit Law in India, Council on Foundations
This article is for general informational purposes only and does not represent legal advice as to any particular set of facts. Please seek legal counsel as you deem necessary.