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Credit Rating of NGO by CRISIL

Credit Ratings of NGOs in India

Grading an NGO is not a new idea, since 2004 Credibility Alliance  was rating NGOs and till now rated more than 200 NGOs in India. Globally, credit ratings of NGOs are done by third party since very long specifically in USA and UK. But now, when CRISIL has introduced credit rating of NGO in India, this will definitely change the scenario of existing fund raising and play very crucial part to attract large donations.

CRISIL is very known agency in India for Credit Ratings and Risk Analysis. CRISIL has recently graded two NGOs, HelpAge India was assigned a VO-1A grade and SOS Children’s Village (SOSCV) was given a ‘VO-2A grade.

CRISIL Grading System for NGOs

CRISIL has come up with two sets of grades for NGO. One for Capacity Delivery and Second for Financial Proficiency. In case of Capacity Delivery ratings are from VO 1A  (very strong) to VO 5A, And for Financial Proficiency grades are High, Moderate and Low.

Norms of CRISIL for NGOs

As mentioned above CRISIL has come up with Capacity Delivery and Financial Proficiency.

In Capacity Delivery mainly three things are focused –

1) Profile  – means people driving the NGO, Founders, Trustees and such other aspects

2) Process – means how sound an NGO is in Processes,  training of Field Staff, project implementation process etc.

3) Program – Impact Analysis of Flagship program of NGO.

To Analyse Financial Proficiency, there has been rigorous procedure to check  –

1) Ability of NGOs to raise funds.

2) How well funds are utilized.

How to apply for NGO ratings of CRISIL?

CRISIL has not mentioned anything on its website regarding application for Credit Rating of NGOs. However I am in touch with their officials and try to get the information. If you wish to apply for CRISIL, put your request and email ID here. I will get back to you once I got all the information.

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NGO and Budget 2014 – Less “Khushi” More “Gham”

NGO and Budget 2014

Finance Minister has proposed many changes for NGOs and Trust in the Finance Act 2014. On one hand many relief are given and on the other hand adding more powers to CIT will cause hardship to NGOs. Let us take highlights of both :

Retrospective Tax Exemptions

It is proposed by Finance Minister that now a trust can claim exemption u/s 12 AA even for the period before applying registration of 12AA. Earlier trust can get tax exemptions only from the date of getting registration.

Exempt Past Assessment years

The Finance Bill, 2014 proposes to exempt Past Assessment Years where the assessment proceedings are pending before the AO on the date of registration.

Anonymous Donation

It is proposed that while calculating Tax Liability of Trust, instead of excluding entire amount of anonymous donation, only the amount in excess of 5% of total income or Rs. 1 Lac whichever are higher should be deducted.

Power of Cancellation

The amendment may create discomfort among NGOs is to increase powers of CIT to cancel Registration.  Earlier only in two cases CIT can cancel the registration 1) If he feels that activities of organization were not genuine and ii) activities were not being carried out in accordance with the object of the trust. In current Finance Act, another four such provisions added –

 if the institution’s activities are being carried out in such a manner that:

iii) its “income does not enure for the benefit of general public”

iv) “it is for benefit of any particular religious community or caste”

v) “any income or property of the trust is applied for benefit of specified persons like author of trust…”

vi)  its “funds are invested in prohibited modes”

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Statutory Compliance for NGO after its registration

Statutory compliance for ngo in india

We have already discussed in this post about how to form NGO. After forming NGO in India, there are statutory compliance for NGO, which requires utmost care. Let us discuss all in detail, one by one.

PAN

After registration of NGO with State Charity Commissioner or Collector or Society Registrar, first thing is to apply for PAN of NGO. It is compulsory to apply for PAN after registration of NGO. You can apply PAN online through this website.

Registration u/s. 12A of Income Tax Act

Commonly known as 12A certificate, this registration is NOT mandatory. Purpose of getting this registration u/s. 12A is to get exemption from Income Tax on the Income of the trust, if all the conditions laid down in this section are fulfilled. You can check detail procedure here how to apply for 12A certificate.

Registration u/s. 80G of Income Tax Act

Again, this is NOT a mandatory one. However to give benefit of 50% or 100% exemption on donation to our donors, it is per-requisition to get the registration u/s. 80G of Income Tax Act. It is indirectly benefited to NGOs to raise funds. Go through this post for detail procedure to get 80G Certificate.

FCRA Registration

If there are possibilities to receive Foreign Funds for projects of NGO, a registration with FCRA department, Ministry of Home Affairs is compulsory. Without FCRA registration, NGO cannot receive any foreign donation or grants. Check more FAQs on FCRA here.

TAN

During the working of NGO at any point of time, if NGO become liable to deduct tax from source, it has to first apply for TAN. Like PAN , TAN application can be made online thought this website.

Service Tax Registration

Only when NGO is providing services like consultancy work or research activity etc… and if gross revenue from such activity cross the basic exemption limit of service tax, then NGO has to first apply for Service Tax Registration number. Again it is an online procedure and you can apply for registration here.

Professional Tax

Professional Tax is a liability of NGO to deduct from the salary of employee and deposited to Government. Professional Tax is State Government look out and thus different states of India having different rules for Professional Tax.

Retirement Benefit

Retirement benefits like Provident Fund, Gratuity, ESIC etc.. is applicable to NGO when it grow up and having employees more than prescribed limit in this acts.

Summary

Depending upon the work and size of NGO, you can either apply for all the above statutory compliance immediately after registration of NGO or you can apply as and when requirement arises.

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Cleanup of NGO Balance Sheet before 31st March

BEFORE year ends on 31st March, NGO has to look out some points regarding its books of accounts.   An NGO has to prepare an Income & Expenditure Account, Balance Sheet and Receipts and Payments Account. In case of Income Expenditure Account and Receipts Payments Account, only current  year figures are taken and thus no cleaning process required for it.

However in case of NGO Balance Sheet, figures and items are carried forwarded from year to year. In many of the accounts, only opening balances are  carried down from years without having any transactions, and thus every year it is the duty of NGO Accountant to look at the Balance Sheet before 31st March, list out such types of dormant accounts and pass necessary journal entries to remove it, only after taking approval from higher designated person of the NGO.

Dormant Accounts in NGO Balance Sheet

Mostly Fund Accounts with very nominal balance, mostly in Unutilized Grants or Grants Receivables may be consider as dormant. If project was completed before 2 to 3 years back and if there is nominal balance either positive or negative, should be transfer to General fund.

Unused Bank Accounts

Because of emphasis of Government funded projects to open a Separate Bank Account for Project, it may be seen that in an NGO, more than 5 to 10 Bank Accounts are opened. As such, there is no limitation on Maximum number of Bank Accounts, it should be restricted for administrative smoothness. Secondly, some charges are debited every year even we do not use Bank Accounts. To avoid all such, it is lookout of accountant to identified such unused bank accounts and start procedure of closing it.

“Ghost” Fixed Assets

Some of the Fixed Assets in NGO are on paper but you could not find it physically. I say them “Ghost” Fixed Assets. All these type of “Ghost” Fixed Assets should be removed even from paper by passing resolution and journal entries.

TDS Receivable (Income Tax Refund Accounts)

TDS of NGO is deducted from consultancy, or on Interest on Fixed assets and such other types of Income. This TDS is claimed as refund in Income Tax Return of NGO. However due to slow process of Income Tax Department in issue of refund. These “TDS Receivable” Accounts are carried forwarded from years. Sometimes, refund is already deposited in bank account but not properly accounted for. Go to this link of Refund Status Website to check how much refund is pending and only those related refund accounts should reflect in the NGO Balance Sheet

Summary

NGO Balance Sheet is a financial mirror of any organization and thus it must be clean periodically, else the picture reflects, will not look transparent.

Hope this will help you in your NGO, if you have any question,  you can ask here or chat with us. Also your comments are welcome on the above subjects.

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Have you Change Board Members Since FCRA Registration ???

CHANGE  BOARD MEMBERS MORE THAN 50% UNDER FCRA

After taking FCRA registration, NGO has to take prior permission before making any change Board Members in excess of 50%.  This condition is mentioned in the “Undertaking”  given by the applicant at the time of making Application for Registration or for Prior Permission.

Details are provided below –

Where such provision mentioned?

it is not mentioned in the Act or the Rules, it becomes binding on all the organisations by virtue of the ‘undertaking’ . Look at the below specimen of ‘Undertaking’. It is a part of application form of FCRA registration  or prior permission.

Why this kind of provision?

The primary purpose of this law is to prevent unscrupulous practices where the FC registered associations are taken over by changing the governance structure.

How to compute 50%?

Let us take one example. In an organization there were 7 Board Members at the time of Application made under FCRA. Later on one by one three Board Members were resign. Now fourth Board Member also wants to resign. So as per above undertaking, an organisation has to take prior approval from FCRA Department before change take place with fourth Board Member.

What if Change Board Members happen due to death?

There may be a change of more than 50% in the board as discussed above for reasons such as death or election by voting etc. which are not in the control of the organisations. In such cases, the organisation should inform the Central Government immediately after such change has occurred and get retrospective approval.

What is remedy  If prior approval of such 50% not taken in ignorance of law.

In such cases the organisation should inform the Central Government immediately after becoming aware of such requirement and request for condonation of the lapse. The Central Government may consider the matter if the reasons are justified.

Is it serious offence ? what are consequences ?

The Supreme Court in CIT v. Nagpur Hotel Owners’ Association [2001] 247 ITR 201, held that the additional condition in a Form can be held to be mandatory only if the purpose and the scheme of the pertaining Act is threatened to be defeated. In this case, the Supreme Court held in favour of the Government, but made it very clear that any condition specified in a Form should be within the provisions of the Act and Rules. In our opinion, any change in the Board of Directors in the normal course of activity, does not seem to be a violation of FCR Act or the Rules

Recommendation

However, it is recommended that all organisation should inform the FCRA department and take prior approal wherever it is possible. Further, those organisations who have not taken permission, even after such change has occured, should apply for permission and condonation.

source – FMSF

Have Query ????? Ask Here  Or you can have Live Chat with our expert.

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Donation in cash for more than Rs. 10000

Donation in Cash

Can an NGO collect donation in cash? yes. NGO can collect donation in cash. However it is advisable to take donation by cheque and make the system transparent.

Income Tax Act and Cash Donation

From 1/04/2013, the donor will not get any tax benefit for donation in excess of Rs. 10000 unless such sum is paid by any mode other than cash.

As per the new sub section 5(d) to section 80G of the Income Tax Act 1961, any payment exceeding a sum of ten thousand rupees shall only be allowed as a deduction if such sum is paid by any mode other than cash.

Consequences

From the NGO point of view, NGO can accept donation in cash for more than Rs. 10000, but does not issue receipts claiming 80G exemption. From donor point of view, he can not get exemption under section 80G.

Also note that Rs. 10000 limit is per year per donor means a single donor cannot give more than Rs. 10000 in cash in entire year.

Applicability

This amendment will take effect from 1/04/2013 in relation to A.Y. 2014-15 and subsequent Assessment years.

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5 things you must do at the start of Financial Year in NGO

New Financial Year has just started, and everyone is busy in closing books of accounts of last year. Sometimes, the closing of financial year is done in the month of June or July. If Accounts and Finance running from one financial year to another as it is, without change, sooner or later, it will become absolute. So, this is my advice that at least follow this 5 things at the beginning of the Financial Year.

1. Annual Budget

NGO has establish to fulfill a mission with the vision in mind. And to achieve that, one needs long term plan which breakdown in a yearly column. That is called Annual Budget.  Now a days, its a trend that from big funding agency to CSR companies to small donors, everyone asking whether you have prepared Annual Budget or not. The right time for the preparation of Annual Budget for NGOs is in the Last week of March or first week of April, not later than that. Read this blog on Annual Budget.

 

2. Changes in Multi-Year Projects

If you  have multi year project, most likely budget of such project will change with the change in financial year. Mostly salaries and staff payments have incremental components and increase in the next financial year. Thus, Accountant must have to ascertain such changes in new financial year  in particular budget and should communicate to program team well in advance.

 

3. Update Financial Manual

Financial Manual is a policy document and need to review every year. Every year, there are many changes in laws and regulations which affects the financial transactions of your organization. Generally, accountant used to start following the new laws and regulation but forget to modify Financial Manual Accordingly.

Example

Cash Expenditure limit was decreased from Rs. 20000 to Rs. 10000. But still many NGO has the limit of Rs. 20000 in their Financial Manual. Nobody bothers to read and update it.

 

4. Splitting Tally Database

Mostly, Accountants in NGOs are lazy to split Tally company and whereby separating database according to Financial Years.  I have seen many NGO accounts, where tally database is same since last 8 to 10 years. Obviously, because of this, size of database increase and speed to work in Tally getting slow to worse. So, It is advisable to split the tally company at the end of the Financial Year.

 

5. Chart of Accounts

Chart of Account is the base of accurate accounting and desirable presentations of Income & Expenditure Accounts and Balance Sheet of NGOs. As, compared to corporate, NGO do not have standard format for its Financial Documents, but they can be created as digital documents in PDF format using software as sodapdf online. I observed, that accountant creates and alters ledger accounts as and when required. So, this is one of the important point to follow at the start of the Financial Year to prepare Chart of Accounts or modified according to the need.

 

Did I miss something?

Hope this will help you in your NGO, if you have any question,  you can ask here or chat with us. Also your comments are welcome on the above subjects.

 

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What you should check before Submitting FC-6?

FCRA Annual Return

Every NGO, registered under Foreign Contribution Regulation Act (FCRA), must have to file FCRA Annual Return under FC-6 form every before 31st December. You can check how to file FC-6 form here.

When you are filling FC-6 return online, there are less chances of mismatch of figures like grants, expenses and closing balance. However, some of the information must be checked before submitting the same.

Cross Check before filling FCRA Annual Return

Sr Financial Documents FCRA Online
1 Last Year FC Return Closing Balance FC6 Purpose & Address Previous Balance
2 Receipt & Payment (FC) Receipt Side FC6 Part II SR No 1(A)
3 Receipt & Payment (FC) Payment Side FC6 Part III Total Spent
4 Balance Sheet (FC) Closing Cash &Bank Balance FC6 Part III Closing Balance
5 Bank Pass Book  Credit Summesion FC6 Part II SR No 1(A)

 

 

 

 

 

 

Summary

Utmost care should be taken before filling FCRA Annual Return, so that any errors or mismatch of figures with books of accounts can be omitted. Such kind of errors while filling FCRA Annual Return may cause cancellation of FCRA registration to NGO.

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Trust Assest use by Trustee

Can Trust Assets used by Trustee?

Trustees can not used Trust Assets for purpose other than official. Mostly Car, mobile phones, Air Conditions other furniture etc.. if used by Trustee or other related party, trust must have collect the hire charges for that.

One of the coolest incident i have read is as follow :

Once upon a time, there was an NGO. One day they bought a refrigerator for Rs.5,445. They kept it at the Managing Trustee’s house. The income tax people wanted to know the reason for this. The NGO said: ‘Our office building was not ready. We wanted to offer cold water to our Swedish donors’.

Result? Tax people rejected the explanation and withdrew the NGO’s income tax exemption. The High Court also confirmed it.

Moral of the story?

Make sure the Trustees or key persons do not use the NGO’s assets. And if they are used, recover hire charges from them.

Hope this will help you in your NGO, if you have any question, you can ask here or chat with us. Also your comments are welcome on the above subjects.

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Do you show Disclosure of Related Party Payments ?

Disclosure of Related Party Payments

As per Accounting Standard 18, issued by Institute of Chartered Accountants of India, business entity has to show disclosure of Related Party Payments. This Accounting Standard is applicable from 1st April 2001. You can read full Text of AS 18 here.

NGO and Accounting Standard 18

AS 18 is also apply to NGOs  in some cases. NGO has to show such disclosure when salary, remuneration or any other payments made to Chief Functionary, Trustees or Top management and associated with NGOs.This disclosure will form part of annual audited financial statements.

Some Examples

Remuneration paid to Trustee, Managing Trustee, Chief Functionary
Consultancy paid to Trustee etc…
Consultancy paid to Related NGOs where one of the Trustee
However Reimbursement of Traveling Expenses to attend meeting is not covered by this AS.Where to show such disclosure

Generally, this disclosure is to be made in financial statement of NGO. As per Income Tax Act, even Auditor of NGO has to disclose such kind of payments to his Audit Report under section 10B. In my opinion to reflect greater transparency, one has to show it in Financial Statements, Audit Report and even in Annual Report of organization.

Summary

As public money involved in NGO, it is accepted that each and every transaction must be very very transparent. Such kind of disclosure serve the above purpose and also it works as an internal check system in broader senses.

Hope this will help you in your NGO, if you have any question, you can ask here or chat with us. Also your comments are welcome on the above subjects.

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