In India, NGO’s are frequently used as a clever tool for tax planning or we may say as tool used for giving colour to taxable money as exempted money.

In income tax, there are specific provisions which clearly sets rules for businesses or professionals that they need to maintain the prescribed list of books of accounts.

But in Income Tax laws there are no prescribed list of books of accounts to be maintained then question comes in to mind what it behind the reason that NGO’s do require to specific set of books?

Kinds of NGO:-

There are 3kinds of legal forms under which NGO can be constituted: –

  1. Society registered under Society Registration Act
  2. Public Trust
  3. Section8 company registered under Companies Act,2013.

All of the above has to maintain the books of accounts as per the requirements mentioned in the constitutional document of the NGO say it be Memorandum of Object in case of Society, Trust deed in case trust, Memorandum of Objects and Articles of Association in case of Section 8 company.

Which law prescribes the list of specific accounts to be maintained by NGO?

The books of accounts which has to be maintained by NGO, It may be prescribed and maintained under following: –

  1. Constitutional documents of formation/registration of NGO.
  2. The underlying law in which NGO is formed/registered.
  3. Any Other law which NGO specifically requires to abide.

What does income tax laws says about accounts to be maintained by NGO?

For the purpose of income tax laws, since NGO’s get themselves registered under u/s 12AA or 80G of income tax act to get the benefit of their incomes to be assessed as exempted income or giving the benefit of income tax exemption to donors respectively. Such registered NGO’s has to undergo under audit under form 10B therefore BOA should give true and fair view.

Essential ingredient of accounts of NGO:-

In order to make sure that books give True and fair, books should sufficiently exhibit the trail of transaction mentioned there in, should have appropriately showing the receipts and payments, income and expenditures BUT PLEASE NOTE THERE IS NOT ANY FIXED AND PRESCRIBED FORMAT OF MAINTAING BOOKS FOR THE PURPOSES OF INCOME TAX LAW.

Disclaimer: –This article is for the general information and awareness of its readers, In-case of any legal matter in relation with readers, they are expected to have legal opinion before placing reliance on it. Further it contains completely author’s views on the subject and completely unbiased based on authors own experience, study and understanding.

AUTHOR:- Rajul Jain (CA, MCOM, LLB, MBA, CNPO, CPFA, and NCFM) is Chartered Accountant and Legal Consultant, academically he is highly qualified and have gone through various certifications. He extensively speaks and writes on finance, taxation and legal matters. The author can be reached at [email protected]