Giving Compass' Take:

• Tanaya Jagtiani shares 10 things that nonprofits in India need to know about the current legal framework.

• There are tremendous opportunities for impact giving in India because of the scale of need, growing nonprofit capacity, and local philanthropic engagement. How can you get engaged? 

• Here's how tax laws can cost nonprofits thousands of dollars.  

The legal framework governing civil society in India is rapidly evolving, and there is a labyrinth of regulations affecting the governance, funding, and taxation of nonprofits in India. The International Center for Not-for-Profit Law’s India Philanthropy Law Report 2019 unpacks these laws, highlighting recent legal developments and analysing their implications for the functioning of Indian nonprofits. Here are 10 highlights from the report:

  1. Nonprofit organisations in India usually take one of three legal forms
    Nonprofits may be registered as public charitable trusts, societies, or Section 8 companies.
  2. It takes approximately three to four months to register a nonprofit
    In addition to this, the Income Tax Department may require anywhere between three to six months to grant tax exemption status (Section 12AA of the Income Tax Act, 1961) and to process donors’ tax deductions (Section 80G).
  3. There are restrictions on the types of activities that nonprofits are allowed to undertake
    Nonprofits in India are prohibited from engaging in a wide range of political activities, including political campaigning and direct political advocacy.
  4. The Companies Act, 2013 has been amended to strengthen corporate social responsibility (CSR) compliance
    The Companies Act, 2013 mandates that companies with a net worth of INR 500 billion or an annual turnover of INR 10 billion are required to spend a minimum of two percent of their average pre-tax profit each fiscal year on CSR activities.
  5. The registration of a nonprofit can be cancelled if it has engaged in activities not listed in its founding documents
    Section 12AA of the Income Tax Act, 1961, which grants tax exemptions to nonprofits, was amended under the Finance (No. 2) Act, 2019.
  6. Trustees and officers of nonprofits may be required to declare their assets under the Lokpal and Lokayuktas Act, 2013
    Section 44 of the Lokpal and Lokayuktas Act, 2013 requires public servants to declare their assets to the Ministry of Home Affairs.
  7. Indian nonprofits are not permitted to operate internationally and their funds have to be used exclusively in India
    Indian nonprofits face restrictions not only around where and how they operate, but also around the acceptance of foreign funding.
  8. Organisations registered under FCRA face limitations on their use of cash and the purposes for which they can use foreign funds
    The Ministry of Home Affairs has published guidelines on compliance with the FCRA, which warns against the use of cash payments and debit-card withdrawals of over INR 2,000 by nonprofit with FCRA accounts.
  9. Donors are entitled to a 100 percent deduction for donations to certain organisations
    In general, donors are permitted to deduct contributions to trusts, societies, and section 8 companies that have been granted charitable status.
  10. Commercial receipts from foreign sources are not the same as foreign donations
    Domestic nonprofit organisations without an FCRA registration may receive foreign money for commercial services provided, and are not required to report this to the FCRA department.

Read the full article about the laws that govern India's nonprofits by Tanaya Jagtiani at India Development Review (IDR).