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Nonprofit Organization (NPO)

Reviewed by Anjaneyulu | Updated on Sep 30, 2020



Generally, organizations do business to earn profits. There are few organizations called non-profit organizations which works for promoting a specific social or charitable purpose and not for profits.

What is NPO's

The non-profit organizations are formed for propagating charity, religion, science, art, or any other purpose. It is different from the other type of organization known as not-for-profit organization which also retains profits for fulfilling the organization's objectives.

The major similarity between a non-profit organization and not-for-profit organization is that both the organizations are not working for earning the profit. A non-profit organization may work as a not-for-profit organization, but a not-for-profit organization cannot function as a non-profit organization.

India's tax laws affecting not-for-profit organizations (NPOs) are similar to the tax laws of other Commonwealth nations. The income of certain NPOs carrying out specific types of activities is exempt from corporate income tax, with the caution that unrelated business income is subject to tax under certain circumstances.

NPO's in India

In India, non-profit organizations are the most common type of societal institutions that do not have commercial interests. However, there are other categories of non-commercial organizations that can gain official recognition. For example, memorial trusts, which honour renowned individuals through social work, may not be considered as NGOs. They can register in four ways: 1. Trust 2. Society 3. Section 8 company 4. Special licensing

Registration can be done either with the Registrar of Societies (RoS) or the Registrar of Companies (RoC). The following Constitutional Articles or laws of India are relevant to the NPOs:

  1. Articles 19(1)(c) and 30 of the Indian Constitution
  2. Public Trusts Acts of various states
  3. Societies Registration Act, 1860
  4. Income Tax Act, 1961
  5. Section 8 of the Companies Act, 2013
  6. Foreign Contribution (Regulation) Act, 1976.

The income tax law provides tax benefits for donors. The donor is eligible for a 50% deduction subject to 10% of adjusted gross total income under Section 80G of the Income Tax Act, 1961.

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