Overview of Annual Compliance for NGOs in India

Annual compliance for NGOs is more than just a legal formality—it is the foundation of trust, transparency, and sustained operational success. Whether you manage a small grassroots trust or a large Section 8 company, following the right NGO compliance checklist is essential to maintain credibility, attract funding, and avoid severe penalties. Timely filings, accurate financial reporting, and meticulous documentation build confidence among donors, government authorities, and the public.

Compliance is also crucial for securing and maintaining certifications like 12A and 80G, which offer income tax exemptions and benefits for donors. Without these certifications, NGOs risk losing key funding avenues, including Corporate Social Responsibility (CSR) contributions from companies. Moreover, NGOs receiving foreign donations must strictly adhere to FCRA compliance to continue operating legally.

What is NGO Annual Compliance?

NGO annual compliance refers to the statutory filings, audits, and documentation that every NGO must complete each financial year to maintain its legal and operational status. The specific requirements depend on the type of NGO and the governing legislation, such as:

• Societies Registration Act, 1860 – for societies

• Indian Trusts Act, 1882 – for charitable trusts

• Companies Act, 2013 – for Section 8 companies

• Foreign Contribution (Regulation) Act, 2010 (FCRA) – for NGOs receiving foreign funds

The typical NGO compliance checklist includes filing income tax returns, holding Annual General Meetings (AGMs), maintaining proper books of accounts, and submitting annual activity and financial reports to the respective regulatory bodies.

NGOs receiving CSR funds or foreign contributions must also comply with additional requirements like FCRA registration, CSR reporting, and related audits.

Following a comprehensive compliance checklist helps NGOs build credibility with donors, regulatory agencies, and the public while shielding the organization from legal risks and financial penalties.

Why is Annual Compliance Important?

Consistent adherence to NGO compliance obligations is vital for several reasons:

• Legal Protection: It safeguards your NGO’s registration and legal status. Missing compliance requirements can lead to deregistration.

• Financial Health: Compliance ensures you can claim tax exemptions, avoid penalties, and remain eligible for grants and CSR funding.

• Donor Confidence: Transparent financial and statutory reporting builds trust, making it easier to secure and retain funding.

• Reputation Management: Non-compliance risks public blacklisting and damages the NGO’s reputation.

• Sustainability: Regular compliance helps maintain smooth operations and long-term sustainability.

Maintaining a compliance manual tailored to NGO staff and trustees can streamline these processes and reduce the risk of oversight.

Consequences of Non-Compliance

Failure to follow the NGO compliance checklist can lead to serious repercussions:

• Deregistration: Authorities may cancel your NGO’s registration, effectively halting its operations.

• Financial Penalties: Non-compliance attracts heavy fines, sometimes ranging from ₹50,000 to ₹2,00,000. Late FCRA filings can incur penalties up to 5% of foreign contributions received.

• Loss of Tax Benefits: Revocation of 12A and 80G certificates reduces donors’ tax incentives, directly impacting funding.

• Funding Restrictions: Non-compliance can render your NGO ineligible for CSR and other grants.

• Legal Action: Directors or trustees may face legal proceedings and personal liability.

• Damage to Public Image: Negative publicity may severely affect donor and partner relationships.

Keeping detailed compliance reports and up-to-date legal documentation is essential for smooth operations.

Types of NGOs and Their Compliance Requirements

1. NGOs Registered as Trusts

• Governed by the Indian Trusts Act, 1882, and respective state public trust laws.

• Key compliance tasks: Annual income tax returns, mandatory audits, maintenance of books of accounts, renewal of 12A/80G/FCRA registrations as applicable, and a compliance manual for trustees.

• Compliance requirements are relatively simpler but crucial for legal standing and donor trust.

2. NGOs Registered as Societies

• Governed by the Societies Registration Act, 1860.

• Key compliance tasks: Hold AGM within six months of the financial year end, submit annual activity and financial reports to the Registrar of Societies, file annual income tax returns, conduct audits if gross receipts exceed thresholds or under 12A, renew society registration as per state laws, and prepare compliance reports.

• A compliance manual for staff is essential.

3. NGOs Registered as Section 8 Companies

• Governed by the Companies Act, 2013, with the most rigorous compliance standards.

• Key compliance tasks:

  • Hold at least two Board meetings annually (four if turnover exceeds ₹2 crore) with proper minutes.

  • Conduct Annual General Meeting (AGM).

  • File audited financial statements.

  • File ROC returns: AOC-4 (within 30 days of AGM), MGT-7 (within 60 days), ADT-1 (within 15 days of AGM for auditor appointment).

  • File Director KYC (DIR-3) annually by 30th September.

  • File annual income tax returns.

  • Comply with FCRA if receiving foreign funds and file FC-4 returns.

  • Maintain CSR compliance and documentation if applicable.

  • Maintain detailed financial records and statutory registers.

• A comprehensive compliance manual is necessary to manage these complex requirements.

Important Due Dates for NGO Compliance (FY 2024-25)

Meeting these deadlines is critical to maintain your NGO’s good standing and legal compliance.

Documents Required for Annual Compliance of an NGO

Maintaining proper documentation is fundamental for an NGO to meet its annual compliance requirements and remain legally operational. Below is a comprehensive list of documents that every NGO should gather, organize, and preserve.

Common Documents for All NGOs

• Registration Certificate: Original or certified copy of the NGO’s registration — Trust Deed (for Trusts), Society Registration Certificate (for Societies), or Certificate of Incorporation (for Section 8 Companies).

• PAN Card: The NGO’s Permanent Account Number required for all tax filings and financial transactions.

• 12A and 80G Certificates: If applicable, these certificates must be kept updated to claim tax exemption and provide donor tax benefits.

• Bank Statements: All bank statements related to domestic and foreign accounts (if applicable) for the relevant financial year.

• Books of Accounts: Complete ledgers, cash books, vouchers, and financial records detailing all transactions.

• Income and Expenditure Statement: Summarizes the NGO’s total income and expenses for the year.

• Balance Sheet: Displays the NGO’s financial position at the end of the financial year.

• Receipts and Payments Account: A detailed record of all cash inflows and outflows.

• Minutes of Meetings: Records of all board meetings, Annual General Meetings (AGM), and any special meetings.

• Annual Report: A comprehensive summary of the NGO’s activities, achievements, and challenges during the year.

• Audit Report: Prepared by a Chartered Accountant after auditing the NGO’s financials.

Specific Documents for Section 8 Companies

Section 8 companies have additional statutory documentation requirements under the Companies Act, 2013:

• Certificate of Incorporation and Memorandum & Articles of Association

• Board Resolutions passed during the year

• Director’s KYC (Form DIR-3 KYC) filed annually

• Statutory Registers (including members, directors, etc.)

• Financial Statements filed as AOC-4

• Annual Return filed as MGT-7

• Director’s Report prepared for the AGM

• Proof of AGM Notice and attendance register

Additional Documents for FCRA-Registered NGOs

For NGOs registered under the Foreign Contribution Regulation Act (FCRA), the following are mandatory:

Essential Annual Compliances for NGOs in India

NGOs must perform several statutory tasks annually to maintain their legal standing and financial health:

1. Filing Income Tax Return (ITR)

• All NGOs must file an annual ITR, regardless of income or activity.

• NGOs registered under 12A and 80G must file ITR-7 timely to retain exemptions.

• Missing deadlines can cause penalties and loss of tax benefits.

2. Maintaining Books of Accounts

• Maintain clear, accurate financial records for at least 6 years.

• Include details on receipts, payments, assets, liabilities, donations, grants, and expenses.

• Good bookkeeping facilitates audits, tax filing, and donor confidence.

• Digital accounting tools are recommended for efficiency.

3. Audit by Chartered Accountant

• Mandatory if the NGO’s income exceeds the exemption limit or if registered under 12A/FCRA.

• Auditor verifies financial records and issues an audit report.

• FCRA-registered NGOs must submit the audit report along with Form FC-4.

4. Holding Annual General Meeting (AGM)

• AGM must be held within six months of the financial year-end.

• The AGM reviews annual reports, approves audited accounts, and discusses future plans.

• Proper notice, agenda, and minutes must be maintained.

5. Filing Annual Report/Return with Registrar

• Section 8 Companies file AOC-4 and MGT-7 with the ROC.

• Societies and Trusts file annual reports as per state laws.

• FCRA-registered NGOs file Form FC-4 with the Ministry of Home Affairs.

• Timely submission avoids penalties and non-compliance.

Special Compliance for NGOs Receiving Foreign Funds (FCRA)

What is FCRA?

• FCRA regulates receipt and usage of foreign contributions.

• NGOs must obtain FCRA registration to legally accept foreign donations.

• Ministry of Home Affairs (MHA) enforces compliance and can suspend or cancel registrations.

Filing Form FC-4

• Annual electronic return detailing foreign funds received and their utilization.

• Due by 31st December following the financial year.

• Non-filing can result in penalties or cancellation of registration.

Separate Bank Account for Foreign Donations

• NGOs must maintain a dedicated FCRA bank account.

• Domestic and foreign funds must not be mixed.

• Facilitates transparency and audit compliance.

Rules for Utilizing Foreign Funds

• Use funds only for purposes approved in FCRA registration (education, healthcare, women/child welfare, rural development, environment, skill development).

• Maintain detailed records, submit utilization certificates, and avoid unauthorized use.

• Compliance is critical to prevent penalties and protect registration.

Compliance for NGOs with 12A and 80G Registrations

What Are 12A and 80G Certificates?

• 12A Certificate: Exempts NGOs from paying income tax on surplus income.

• 80G Certificate: Allows donors to claim tax deductions on donations.

• Both enhance credibility and funding potential.

Conditions to Maintain 12A and 80G Status

• File annual income tax returns timely.

• Use funds strictly for stated charitable purposes.

• Avoid diversion or misuse of funds.

• Maintain transparent and updated books of accounts.

• Apply for renewal before certificate expiry.

• Report donations in Form 10BD and issue Form 10BE to donors.

Filing Form 10B/10BB

• Required for NGOs under audit or specific income conditions.

• Accompanied by auditor’s report verifying compliance.

• Essential to preserve tax-exempt status.

Issuing Donation Receipts

• Include NGO name, address, PAN, 80G registration number and validity.

• Provide donor details (name, address, PAN, email).

• Mention amount, payment mode, and tax-exempt statement.

• Authorized signature required.

• Submit donation statements in Form 10BD and issue Form 10BE receipts.

What if Your NGO Receives CSR Funds?

Receiving Corporate Social Responsibility (CSR) funds can significantly boost your NGO’s impact but also brings additional compliance responsibilities. Here’s what you need to know:

Registering Form CSR-1 for CSR Funding

• Before receiving CSR funds, NGOs must register on the Ministry of Corporate Affairs (MCA) CSR portal by filing Form CSR-1.

• Only NGOs listed on the CSR portal are eligible to receive corporate donations under the Companies Act, 2013.

• This registration ensures transparency and compliance with CSR funding regulations and is mandatory for NGOs seeking corporate grants.

Reporting CSR Funds in Financial Statements

• NGOs must separately disclose all CSR receipts, expenditures, and project outcomes in their annual financial statements.

• Transparent reporting reassures corporate donors and regulators of proper fund usage.

• This disclosure is a key component of your NGO’s compliance manual and strengthens accountability.

Special Rules for CSR Project Management

• CSR funds must be strictly used for the approved projects and purposes as per the agreement with the corporate donor.

• Maintain detailed records of project implementation, expenses, and outcomes.

• Provide regular progress reports and utilization certificates to donors or the Ministry of Corporate Affairs as required.

• Non-compliance can result in the loss of future CSR funding and damage your NGO’s reputation.

• Maintaining a strong CSR compliance report fosters trust and long-term partnerships with corporates.

Other Important NGO Operational Compliances

Beyond annual filings, NGOs should also keep these operational compliances in check to maintain smooth and legal functioning.

GST Registration and Filing

• If your NGO sells goods or provides services and crosses the turnover threshold of ₹20 lakh (₹10 lakh in special category states), GST registration is mandatory.

• GST is a transaction-based tax applicable regardless of your NGO’s non-profit status.

• Registered NGOs must file monthly or quarterly GST returns and maintain compliance to:

  • Claim input tax credits

  • Avoid penalties for non-registration or late filing

• Consult a tax expert if your NGO receives grants linked to deliverables or charges fees for services.

• Timely GST filings are crucial for donor and government confidence.

TDS Compliance on Payments

• NGOs must deduct Tax Deducted at Source (TDS) when paying salaries, professional fees, or contractual payments exceeding prescribed limits (e.g., consultant fees over ₹30,000/year).

• TDS must be deposited timely, and quarterly TDS returns must be filed:

  • Form 24Q for salary payments

  • Form 26Q for non-salary payments

• Issue TDS certificates (Form 16 or 16A) to beneficiaries.

• Non-compliance attracts penalties, interest, and can disallow expenses during audits.

Professional Tax Registration (If Employees Are Present)

• Professional tax is levied by states on salaried employees and professionals.

• NGOs with employees must register and comply with the professional tax rules in their respective states.

• Deduct and remit professional tax regularly and file annual returns.

• Non-payment results in penalties and legal action.

Updating PAN and TAN Details

• Maintain accurate and updated PAN (Permanent Account Number) and TAN (Tax Deduction Account Number) details with the Income Tax Department.

• PAN is essential for all financial transactions, bank accounts, and tax filings.

• TAN is mandatory for NGOs deducting TDS.

• Outdated or mismatched PAN/TAN details can cause rejection of statutory filings and tax returns.

Costs of NGO Annual Compliance in India

Understanding and budgeting for compliance costs help NGOs plan better and avoid surprises.

Typical Cost Components

• Additional costs may include digital accounting software and retainers for consultants.

Factors Influencing Compliance Costs

• Legal Structure: Section 8 companies incur higher costs due to stricter audits and filings; trusts have lower costs.

• Turnover & Funding: Higher income or foreign donations increase audit and reporting requirements.

• Number of Registrations: FCRA, 12A, 80G, GST registrations add to the total expenses.

• Professional Services: Fees vary by expertise, workload, and location.

• Geographical Operations: Multi-state activities may increase costs due to different state laws (e.g., professional tax).

Government Fees vs. Professional Fees

• Government Fees: Fixed statutory fees for filings and registrations (e.g., ROC filing fees ₹200-₹600, FCRA registration ₹10,000).

• Professional Fees: Variable charges by auditors, tax consultants, and compliance experts.

Balancing these helps NGOs optimize fund utilization and ensure smooth compliance.

Planning and maintaining these compliance steps and budgeting for costs are critical to sustaining your NGO’s credibility, legal status, and operational success.