Step-by-Step Guide to Forming an NGO: A Businessman's Handbook

Picture this: you're driven to ignite a positive shift in society, rectify its imbalances, or lend your hand to a noble endeavour. But how can you make this happen? 

The answer lies in setting up a Non-Governmental Organization (NGO). An NGO could serve as your vehicle for creating substantial change, especially in a country like India, teeming with organisations brimming with purpose.

In this enlightening guide, we're going to explore the formation of NGOs, their operations, roles, benefits, and the associated tax incentives.

So, ready to embark on this journey of understanding and empathy?

What is Formation of NGOs?

Giving help to others in need without expecting anything back is what charity is all about. It's a good act that anyone can do, no matter their money situation.

Non-Governmental Organizations, or NGOs, are important in these giving acts. They mainly focus on fixing social problems and making life better for society. You might also hear NGOs being called Non-Profit Organizations (NPOs).

These NGOs are committed to alleviating the burdens of people in need, extending support to the economically disadvantaged, safeguarding our environment, offering essential societal services, and fostering community growth.

India is home to a vast number of NGOs, some of which are officially registered, while others operate without formal registration but are all actively involved in social activities.

In India, NGOs can primarily be classified into three types based on their registration method. These include NGOs registered under the Companies Act, the Indian Trust Act, and the Societies Act.

For anyone aspiring to establish an NGO, it's pivotal to discern the kind of organisation they should commence. A firm grasp of these three types enables individuals to administer their NGOs with their team's backing efficiently.

The three types of NGOs in India are: 

• NGO as a company
• NGO as a trust
• NGO as a society

How Societies and NGOs Work in India?

NGOs in India work to address various social, environmental, and developmental issues. They work on education, healthcare, poverty reduction, women empowerment, environment protection, and more without government support.

NGOs typically raise funds through donations and grants, and they implement projects and programs to achieve their objectives.

They work with communities, government agencies, and other partners to help marginalised Indians.

Duties and Roles of NGOs

NGOs in India perform a variety of duties and roles, including:

1. Advocacy and raising awareness
NGOs play an active role in heightening awareness regarding social, environmental, and developmental issues. They champion policy shifts, advocate for human rights, and give voice to the marginalised sections of society.

2. Service delivery and community development
NGOs provide direct services to communities in need. They may provide healthcare, education, vocational training, disaster assistance, and other critical services to boost community well-being.

3. Capacity building and skill development
By offering training programs, skill development initiatives, and entrepreneurial support, NGOs are instrumental in enhancing the capabilities of individuals and communities. This approach empowers people with learning opportunities and fosters self-reliance.

4. Monitoring and Evaluation
NGOs evaluate and assess their programmes' effects. They evaluate the efficacy and sustainability of their initiatives to maximise resource use and achieve desired results.

5. Policy and Research
NGOs exert influence on public policy through policy advocacy and in-depth research. They conduct scholarly studies, analyse data, and proffer insights to shape policies that tackle societal hurdles and advance social fairness.

While these roles and responsibilities may differ based on each NGO's specific focus and objectives, the value they add remains undeniable.

Benefits of NGOs

NGOs play a crucial role in addressing societal issues and promoting positive change. Here are some benefits of NGOs:

• Social impact and positive change: NGOs play a crucial role in addressing social, environmental, and developmental challenges. They aim to improve society and communities.
• Flexibility and innovation: NGOs have the flexibility to respond quickly to emerging needs and implement innovative approaches to problem-solving. They are often more agile than government agencies and can adapt their strategies based on evolving circumstances.
• Engaging citizens in the development process: NGOs involve citizens in their activities, promoting civic engagement and participation. They encourage individuals to contribute to social causes, fostering a sense of responsibility and collective action.
• Empowering marginalised groups: NGOs empower women, children, indigenous communities, and the economically poor. They assist these populations to better their lives by providing education, healthcare, livelihood opportunities, and other important services.
• Tax benefits for NGOs in India: In India, registered NGOs can avail of tax benefits and exemptions under certain provisions. These benefits incentivise individuals and organisations to contribute financially to NGOs, thereby supporting their work and initiatives.

Tax Benefits for NGOs in India

Registering an NGO in India is beneficial for several reasons. The primary advantage is its tax benefits, particularly under Section 12A and 80G of the Income Tax Act. NGOs with 12A registration are eligible for a full exemption from income tax.

Additionally, NGOs with 80G certification attract more donors as their donations are eligible for tax deductions. Failure to obtain these registrations subjects NGOs to regular tax rates and makes it challenging to attract donors.

Previously, 12A registration was a one-time process, but as of April 1, 2021, it is valid for five years, requiring renewal every five years. The new tax regime consolidates various sections of the Income Tax Act under a new Section 12AB.

Section 12A and 80G registrations have significant implications and provide numerous benefits to NGOs.

Here are some advantages of obtaining these registrations: 

NGOs can obtain tax exemption by registering under Section 12A and obtaining 80G certification.

Donors can benefit from tax deductions on their donations only if the NGO has the 12A and 80G certificates.

Individuals or organisations making donations can avail a deduction of 50% of the donation amount from their taxable income.

NGOs registered under Section 12A and 80G become eligible for government funding.

NGOs with 12A and 80G certificates are not required to pay taxes on their income.

Conclusion

As we demystify the key aspects of establishing and managing an NGO, it becomes evident that embarking on such a venture is not solely about driving social impact. 

It's also a wise move for businesspeople, offering them an opportunity to broaden their scope and gain a new outlook on societal progression. The benefits are two-fold: a tangible contribution to societal progress and tax incentives that enhance the bottom line. 

So, isn't it time you channelled your business acumen into the vibrant landscape of NGOs?

To turn your NGO vision into reality and reap its financial benefits, consulting a financial advisor is a prudent first step. They can guide you through the legal intricacies and help you make the most of this rewarding journey.