In India non profit / public charitable organizations can be registered as trusts, societies, or a private limited non profit company, under section-25 companies. Non-profit organizations in India (a) exist independently of the state; (b) are self-governed by a board of trustees or 'managing committee'/ governing council, comprising individuals who generally serve in a fiduciary capacity; (c) produce benefits for others, generally outside the membership of the organization; and (d), are 'non-profit-making', in as much as they are prohibited from distributing a monetary residual to their own members.
Section 2(15) of the Income Tax Act - which is applicable uniformly throughout the Republic of India - defines 'charitable purpose' to include 'relief of the poor, education, medical relief and the advancement of any other object of general public utility'. A purpose that relates exclusively to religious teaching or worship is not considered as charitable. Thus, in ascertaining whether a purpose is public or private, one has to see if the class to be benefited, or from which the beneficiaries are to be selected, constitute a substantial body of the public. A public charitable purpose has to benefit a sufficiently large section of the public as distinguished from specified individuals. Organizations which lack the public element - such as trusts for the benefit of workmen or employees of a company, however numerous - have not been held to be charitable. As long as the beneficiaries of the organization comprise an uncertain and fluctuating body of the public answering a particular description, the fact that the beneficiaries may belong to a certain religious faith, or a sect of persons of a certain religious persuasion, would not affect the organization's 'public'character.
Whether a trust, society or section-25 company - the Income Tax Act gives all categories equal treatment, in terms of exempting their income and granting 80G certificates, whereby donors to non-profit organisations may claim a rebate against donations made. Foreign contributions to non-profits are governed by FC(R)A regulations and the Home Ministry.
CAF would like to clarify that this material provides only broad guidelines and it is recommended that legal and or financial experts be consulted before taking any important legal or financial decision or arriving at any conclusion.
Formation and Registration of a Non -Profit organisations in India