Accounting and Bookkeeping Laws and Regulations for NGOs (Trusts and Societies) in India

Non-Governmental Organizations (NGOs) in India, including trusts and societies, play a crucial role in various social, educational, and charitable activities. Proper accounting and bookkeeping are essential for these organizations to ensure transparency, compliance, and effective use of resources. Here is a comprehensive overview of the accounting and bookkeeping regulations applicable to NGOs in India.

1. Laws Governing NGOs

The primary laws governing NGOs in India are:

• The Indian Trusts Act, 1882: Regulates the formation and operation of trusts, including accounting and financial management.
• The Societies Registration Act, 1860: Governs the formation and operation of societies, including their accounting practices.
• The Income Tax Act, 1961: Provides tax regulations for NGOs, including income tax exemptions and compliance requirements.
• The Goods and Services Tax (GST) Act, 2017: Governs GST compliance for NGOs involved in the supply of goods and services.
• The Foreign Contribution (Regulation) Act, 2010 (FCRA): Regulates the receipt of foreign contributions by NGOs.

2. Statutory Norms of Bookkeeping and Accounting

a. Accounting Standards

• Generally Accepted Accounting Principles (GAAP): NGOs should adhere to GAAP for accurate and consistent financial reporting. Although specific standards for NGOs are not mandated, adherence to broad accounting principles is crucial.

b. Books of Accounts

NGOs must maintain the following mandatory books of accounts:

1. Day Book or Journal: Records all daily transactions.
2. Cash Book: Logs all cash transactions.
3. Ledger: Consolidates all accounts, categorized into debits and credits.
4. Bank Book: Records all bank transactions.
5. Fixed Asset Register: Lists and tracks the NGO’s fixed assets.
6. Donation Register: Tracks all donations received, including donor details and amounts.
7. Expenditure Register: Records all expenses incurred.
8. Income and Expenditure Account: Shows the NGO’s income and expenditure for the financial year.
9. Balance Sheet: Provides a snapshot of the NGO’s assets, liabilities, and funds.

c. Mode of Accounting

• Accrual Basis: NGOs generally use the accrual basis of accounting, where transactions are recorded when they occur, regardless of cash flow.
• Cash Basis: Some smaller NGOs may use the cash basis of accounting, recording transactions only when cash changes hands.
• ERP Systems: Utilizing ERP (Enterprise Resource Planning) systems with audit trails can enhance accuracy and efficiency. ERP systems manage transactions, generate financial reports, and maintain audit trails for all accounting entries.

3. Income Tax Laws for Accounting

a. Income Tax Act, 1961

• Tax Exemptions: NGOs are eligible for tax exemptions under Section 12A and 12AA of the Income Tax Act, provided they are registered and comply with the prescribed conditions.
• Books of Accounts: NGOs must maintain books of accounts and records that reflect their true and fair financial position. These records must be kept for a period of 6 years.
• Income Declaration: NGOs must declare their income, including donations, and provide details of expenditures. Proper documentation and receipts are required.

4. GST Laws for Accounting and Bookkeeping

a. Goods and Services Tax Act, 2017

• Registration: NGOs must register for GST if their turnover exceeds ₹40 lakhs (₹20 lakhs for North-Eastern states) and if they provide taxable supplies.
• Invoicing: GST-compliant invoices must be issued for every taxable supply of goods and services.
• GST Returns: NGOs must file GST returns (GSTR-1, GSTR-3B) regularly. They must reconcile their sales and purchase data to ensure accurate GST compliance.
• Input Tax Credit (ITC): Proper documentation is required to claim ITC on purchases. However, ITC may not be available for certain exempt supplies.

5. Income Tax Compliances for Accounting and Bookkeeping

• Annual Filing: NGOs must file annual income tax returns, detailing income, expenses, and taxes paid.
• Audit: NGOs with annual income exceeding ₹2.5 lakh are required to have their accounts audited by a Chartered Accountant. The audit report must be submitted along with the income tax return.
• Form 10B: This form must be filed to report the audit of accounts of the NGO.

6. Import and Export Regulations

• Import Export Code (IEC): NGOs involved in import or export activities must obtain an IEC from the Directorate General of Foreign Trade (DGFT).
• Customs Compliance: Proper documentation, including invoices, shipping bills, and customs declarations, must be maintained for import and export transactions.
• GST on Imports: GST on imports must be paid, and proper records must be maintained to claim input tax credits.

7. Other Statutory Laws

• FCRA Compliance: NGOs receiving foreign contributions must comply with FCRA regulations, including the proper recording and reporting of foreign donations.
• Employment Laws: NGOs must comply with labor laws, including wage payments, employee benefits, and statutory contributions such as Provident Fund (PF) and Employees’ State Insurance (ESI).

Audit Provisions

• Statutory Audit: NGOs must undergo a statutory audit if their annual income exceeds ₹2.5 lakh. The audit must be conducted by a qualified Chartered Accountant, and the audit report must be filed with the Income Tax Department and the respective regulatory authorities.

Conclusion

Accounting and bookkeeping for NGOs in India involve adhering to a complex framework of regulations to ensure transparency and compliance. Proper maintenance of books of accounts, adherence to income tax and GST laws, and compliance with FCRA and other statutory regulations are essential for effective NGO operations. Utilizing ERP systems with audit trails can significantly enhance the accuracy and efficiency of accounting processes.

For expert accounting and bookkeeping services tailored to your NGO—whether for a trust, society, or other non-profit entities—contact WynSwell. We offer comprehensive services to ensure your organization meets all statutory requirements efficiently and accurately.