Tag Archive for: Accounting

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Location wise expenditures in FCRA return

As we are aware that a new format of FCRA return has been out in Form FC4.

Check out this tutorial video on how to file FCRA return.

The major change in this return is that it asked for the information Project-wise Expenditures. See below image.

Also, when you add activity or project, it asked to provide the address/location of the activity or project. Check it out.

Let us discuss some of the practical points related to this.

One Project – One Location

Easy-peasy. Nothing to worry. Full project expenditures go here, with opening balance, the grant received, utilization and the closing balance of that project or activity.

One project – Two locations

Bu the problem is here. When a project is implemented in more than one location. So, it is advisable to bifurcate the expenditures as per the location – drill down to district level will be okay.

However, generally, it is very difficult to fetch data from the Tally. If your chart of accounts are not capable of bifurcating locations, one has to check each and every vouchers and have to bifurcate. The easiest method is to create the location as cost categories in Tally so that one can get this data at one click.

How to configure this cost-category? – Check out this blog of mine

Head Office Location

Do not mention all the activity location as a head office, if your field area is different. Head office is for administrative work. Here the logic behind this to get activities in various geographic locations.

Administrative Expenses and Purchase of Fixed Assets

Apart from program expenses, there are administrative expenses and purchase of fixed assets also from the Foreign Funds received. However, there is no clarity to put these expenses in this portion of the FC-4 Form. In my opinion, however, it is better to show administrative expenses and fixed assets related to the projects under here. So, you can get correct balance as at the end of the year for that activity or project.

Conclusion

The bottom line is that give accurate and correct information. Also, to provide detailed information is always better than providing less information. Best of luck for FCRA return filling.

Remember

The last date for filling FCRA return in Form FC-4 for FY 2018-19 is 31.12.2019.

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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How to remove GHOST FIXED ASSETS – Fixed Assets Management in the NGO

Scenario

30 computers were purchased out of funding agency fund during 5 years of projects. Now in the current date, almost every computer is not usable. How do you remove these assets from the  Balance Sheet? This is very important query asked by participants every time I take Training on Accounting and Financial Management of NGO.

As we know NGO is a special type of Entity and rules and regulations governing them are not very clear. Also, there are no accounting standards issued by ICAI specifically related to NGO covering each and every aspect. All these make more confusions. (Why it is very important to clean your Balance Sheet – Read Here).

Let us discuss today how to remove ghost assets from the Balance Sheet.

When Assets should be removed?

Fixed Assets can be removed in the following cases :

  1. if Fixed Assets are not in use
  2. if maintenance expenses are very high
  3. due to change in technology requirements
  4. if Funding Agency instructed to return it back or transfer to another partner

Procedure to remove Fixed Assets

Before that, we need to know the source from which it is acquired. Fixed Assets are generally acquired by NGO in two ways.

1) From Restricted Funds. (Funding Agency Budget etc…)

2) From Unrestricted Funds. (Corpus, General Donation, Interest etc..)

Step 1 Identification

Before 31st March every year, a committee should be formed comprise of Accountant and other two people who then take the stock of Assets and decide which can be scraped or removed or discarded.

Step 2 Approval

On their recommendation, Head of the organisation decides whether to go ahead and remove fixed assets or not. In case of assets acquired from the Funding Agency Fund, written approval must be obtained from the Funding Agency.

Step 3 Passing Resolution

It is highly advisable to put an agenda in the General Meeting regarding removal/scrape/sale of fixed assets. Once approved, a resolution to remove Fixed Assets should be passed in the board/general meeting.

Step 4 Accounting Entries

After passing the resolution, an accountant should pass appropriate journal entry in the books of accounts for removal/scrape/sale of fixed assets recognizing profit or loss if any. Journal entries depend upon how it was recorded originally and depends upon many aspects – whether Fixed Assets Fund created or not? – whether depreciation provided or not? – whether assets are maintained as a Block or Individual items etc…

If your accountant is not capable of passing such entries, email your query at contact@kcjmngo.com or write it in the comment section.

Conclusion

At any point in time, the Balance Sheet should reflect the correct pictures of the economic position of your organization. And Fixed Assets are one of such crucial items in the Balance Sheet. Thus, utmost care should be taken to identify and removal of Fixed Assets.  Also, special attention should be given to such fixed assets purchased from FC funds and how journal entries passed in the book and reflected in the FCRA Returns.

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Is TDS applicable to NGO?

Yes, TDS is applicable to the NGOs. There is no general exemption that Trust, Society or Non Profit Organizations are exempt from deducting and paying TDS. It depends on the Financial Transactions and limits of TDS specified every year in the Financial Act. Thus if NGOs makes payments to specific persons above specific limits, needs to deduct and pay TDS within time line specified.

Look the info-graphic below regarding TDS.

Note : Above rates and limits are for FY 2018-19

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Final Part – How to get Income Tax Refund of NGO Quickly

Before moving into final part of blog on the series of “How to get Income Tax Refund of NGO quickly ?” , lets revise earlier procedures. First of all you need to check refund status and find out for which year/years refunds are pending. (Click here to know procedure for refund status). Then, check whether your refund/return has been processed properly or not. This is very important step. (Click here to check intimation u/s. 143(1)) 

Final procedure to get Income Tax Refund of NGO quickly

So, once you checked that refund you claimed in the return and processed is same, you can submit request for re-issue of Refund. Follow following steps :-

Step 1 : Login to Income Tax Website – https://www.incometaxindiaefiling.gov.in/home

Step 2 : Go to “My Account” -> “Service Request”

Step 3 : Click on “New Reuest” -> “Refund Reissue” and click “Submit” button.

Step 4 : Select the year for which you need to re-issue refund.

Step 5 : Fill the Correct Bank details

Hopefully, you will get the refund amount in the bank account you have given within 15 to 20 days. If you want to know more about this or other technologies, follow the Tech News from TechSmash.net. Hope this will be helpful to your organization. If you have any query or any other problem, write in the comment section of this blog or email to us.

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How to get Income Tax Refund of NGO? – Part2

We have already seen in last blog that, how to check status of refund of your NGO for years.

How to get Income Tax Refund of NGO quickly?

Once, you list out which years Income Tax Refund of NGO not received, we need to find out the reasons for the holding of such refunds. There are reasons behind holding you return, some of them mentioned below –

  1. Mismatch of Bank Details given in return
  2. Case transferred to AO for scrutiny
  3. Refund is adjusted against demand of Assessment Year or Years
  4. Errors in Income Tax Return
  5. Mismatch of TDS claimed in Return with 26AS

Intimation U/s 143(1)

To follow up for refund, one of the important document is “Intimation u/s. 143(1)”. After processing Income Tax Return of your NGO, department generally informed you about this in the form called “Intimation u/s. 143(1)” . This document is emailed to email addressed you mentioned in the ITR. This is important to find out how your Return is processed and what errors are generated and why refund is pending. It looks like this.

There is basically comparison between what you have filled in your ITR and how it is processed at IT department. There has to be same figures for both the columns. What is important is point no 49, which states REFUND. See below :-

If this two figures are same (Department column may be more because of Interest), It means your Income Tax Return is processed properly.  If you have not received to your address, you can even request to send it again.

Request for re-issue of 143(1) Intimation

This is how you can request for re-issue of intimation of particular years.

Step – 1 : Go to https://www.incometaxindiaefiling.gov.in/home

Step -2 : Login with your password

Step -3 : In “My Account” click on “Service Request”

Step -4 : Now select “Request Type” – New Request and “Request Category” – Intimation 143(1)

Step -5 : Click Submit, then enter as below:

Return Type – Income Tax

Assessment Year – As per your excel

Category – Intimation U/s. 143(1)

Sub Category – Resend by Email

Step -6 : Click Submit. Within 2 to 10 days, you will receive an email form Income tax department with attached 143(1) Intimation.

 

So, once you compare all the years Income Tax Refund, which are pending, with 143(1) intimation, you need to now request for re-issue of Refund.

Coming Soon – Part 3 How to request for re-issue of Refund of NGO

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How to get Income Tax Refund of NGO quickly?

Income Tax Refund of NGO

Mostly, TDS is deducted by Banks on the Interest income of NGO. As, NGOs / Trusts are having 12A certificate of Income Tax Exemption, there is no tax on income of NGO and thus all TDS amount is to be refunded by Income Tax Department. However, due to technical and other problems, Income Tax Refund of NGOs are pending with the IT Department for many years. Lets have a look on how to get Income Tax Refund of NGO quickly. But before that you need to first make sure Income Tax Return of your NGO is properly filled in ITR7 form.

All you need to know about Income Tax Return of NGO – ITR7

Also need to check which years refunds are pending and why. So lets find out how to check status of refund of ngo.

There are two ways to check Income Tax Refund of NGO

1) from NSDL Website.

Go to this website : https://tin.tin.nsdl.com/oltas/refundstatuslogin.html , enter your PAN, Assessment Year and Captcha.

 

It will show you the status of your Refund. If Refund is already issued,it will show date when refund is credited to your Bank Account. If your refund was send by Department, but due some errors like wrong Bank Account Number or any such technical issues, it was returned and not credited to your Bank Accounts. In such a case you have to apply for re-issue of Refund. Third possibility is that your case is transferred to AO for scrutiny and thus refund is on hold.

2) With your login ID and Password

If you have login ID and Password of Income Tax Website, you can login and check status from there. If you do not have password, ask to your CA or consultant who has filled your online return.

Importnat Tip

You must keep password of your Income Tax Website with you. Never allow to give email or phone of your CA in your NGO return.

 

Go to this website :- https://www.incometaxindiaefiling.gov.in/home and login with UserID (your NGO PAN) and password.

Go to “My Account” button and click on “Refund/Demand Status”. Under this tab it will display Assessment Year, Status, Reason (for Refund Failure if any) and mode of payment.

Conclusion

Do not only rely on your CA or consultant for Income Tax Refund of NGO. Check your status of refund as mentioned above. In my next blog I will show you steps on how to get refund quickly, after checking refunds of which years are pending.

How to get Income Tax Refund of NGO quickly? – Part 2

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5 Points to keep in mind while operating FCRA Bank Account

There are very strict rules regarding using Foreign Funds under FCRA (Foreign Contribution Regulation Act). Also, FCRA department has already cancelled licenses of many organization on the basis of non-compliance of rules and provisions of FCRA.

As per sec 17 of this Act, every NGO who has been registered under FCRA, has to open a separate Bank Account for receiving and utilizing foreign funds. Let us look at some of the 5 points you should keep in mind while operating FCRA Bank Account.

(1) Do not mix FC & NonFC Funds

Do not receive any funds other than foreign funds to your FCRA Bank Account. You can receive funds in Indian Rupees if it comes from foreign source. Utmost care should be taken while depositing cheques or giving bank account numbers to donor.

 

(2) Interest linking of FDs

You need to instruct very clearly to Bank regarding linking of FDs with your Bank Account. Care should be taken that only FDs from FC funds link with your FCRA bank account so as to receive interest in that bank account only.

 

(3) Online Donation

If you are accepting Donation online through your website or crowd funding website, your payment gateway should be capable of transferring FC money to FC Bank Account and NonFC money to NonFC Bank Account.

 

(4) Time Barred Cheques

Your accounting system should be such that at the every month, all the cheques which are time barred will be cancelled and reversed in the books of account automatically. Otherwise, what happen, in FCRA return expenses were reported, while your balance in FC bank accounts not reduced that much.

 

(5) Sub – FC (Utilization) Bank Account

If you have open a Sub-FC Bank Account for project utilization, do not accept funds directly in that bank account. You have to accept FC funds in Main FC account always and then transfer to Sub-FC Bank Account.

 

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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How to get CSR Funding for your NGO ?- Internal Control System

Why a company having huge CSR funds and want to implement genuine projects, should give funds to your organization ?  This is the question you should ask to yourself and do not indulge into the malpractices as mentioned in this part 1 of this CSR series.

How to get CSR funding for your NGO?-PART 1

Most of the organizations are good at what they are doing in terms of implementing projects and grass root work, but they are not good in maintaining documentations and showing their good work to the world. Read this Part 2 blog, where I mentioned how you should showcase your good work.

How to get CSR Funding for your NGO ?- Program Quality – PART 2

Before we go ahead with Part 3 of this series regarding maintenance of Financial and Internal Control System, look at this latest news regarding spending Rs. 2,80,00,00,00,000 in last three years under CSR by the companies.

Accounting and Financial Control System

When you are approaching companies for CSR funding, it is almost prerequisite that NGO’s Accounting and Financial Control system is matched with the industry standards. You have to remember this:-

  • Regular Accounting (zero backlog)
  • Accurate Accounting
  • High Quality of Supporting (Single rupee spent hast to be  supported by Bills and Vouchers)
  • Strong Internal Control System
  • Watertight Cash Management System
  • Efficient Advance Management System

 

Statutory Compliance

No company will be ready to fund your organization if you have not followed all the Statutory Compliance. As a first step, list down the following compliance and check which  you followed in your organization. For remaining compliance, why you are not following it. Take expert opinion whether it is applicable to your NGO or not.

  • 12A – 80G
  • TDS
  • Income Tax Act
  • GST
  • FCRA
  • PF
  • ESIC
  • Professional Tax
  • Trust and Society Act

 

Governance

How your NGOs working is governing by the members ? Is your NGO is  one man army? Is it look like Proprietorship or Partnership Firm? Whose taking decision and how? These are some of the questions which may be asked at the time or per-scrutiny of project.

  • Authority Matrix
  • Decision Flow
  • Rotation in the Board Members
  • Election or Selection procedure of new board members
  • General Meeting and Executive Body Meetings
  • Maintenance of Minutes of such meetings
  • Intimation of Change in the Board Members

 

Policies

Following policy documents should be prepared and implemented in the NGO

  • Financial Policy
  • HR Policy
  • Accounting Manual
  • General Work Policy
  • Anti Corruption Policy
  • Gender Policy
  • Child Policy, if applicable

Hope the above information will be useful to you in getting CSR funds. We will discuss in next part of this series on how to approach companies for CSR funding.

Part -4 How to approach companies for CSR funds? – Coming Soon

Disclaimer : This blog is purely for the education purpose and author is NOT providing any services to get CSR funding.

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Accounting of Grants for NGOs

Do you know how Grant is presented in your NGOs Financial Statements? As REVENUE or as LIABILITY ? This is one of the crucial question regarding accounting of Grants for NGOs. Generally, we depend on the Chartered Accountants on how our Financial Statements are prepared and presented. Sometimes presentation of Financial Statements become misleading and serve no purpose.

Today we learn how to do accounting of grants for NGOs which is more appropriate in present days.

Introduction – Accounting of Grants for NGOs

There is no clarity Inida regarding how grants should be presented. We have Indian Accounting Standard 20 which mainly dealt with  accounting of Government Grants and not grants for specific projects from Funding Agencies. However, considering Indian Accounting Standards #20 and US Statement of Financial Accounting Standard #117, we can derive following three methods of presenting Grants in the Financial Statements.

Option A – Grants treated as Revenue

Here, we consider Grants Received as Revenue of the current year whether it is related to current year or for next years. Thus, when two years project is sanctioned and total grant received in the first year only, we treat full grant as income of first year. See below image to understand presentation in Financial Statements.

 

In this method, you can see above that unspent grant of Rs 40 clubbed in Income and Expenditure Account as “Excess of Income over Expenses” . Due to this, it becomes difficult to know what funds lying in the I/E Account. Check out the Balance Sheet where I/E Account show Rs. 50 which comprise of Unspent Grants and Other Income.

Option B – Grant treated as Liability

Here, it assumes that, grants and funds received for specific project, is the liability of organization and not Income. Thus whatever grant received, whether for current year or next years taken to Balance Sheet and considered as Liability. Expense from such grant then deducted from the liability and net amount shown in the Balance Sheet. Checkout below how Financial Statements look if we treat Grant as Liability.

In this method, Balance Sheet present correct financial position. However, Income and Expenditure does not show much revenue except income earned by NGOs like Non Specific Donations and Interest Income.

Option C – Best of the above Two

Due to limitations of both the above method, we should presented financial statements as per this hybrid method using best of both the above methods. In this method, we consider that much revenue for current year which actually spent during the year and remaining balance transfer to next year as “Unspent or Unutilized Grant”. Lets have a look, how the financial Statements presented under this method.

In this method, Income Expenditure Account and Balance Sheet showing correct information and in self explanatory manner.

Conclusion

In India, there is no such proforma available in any Act regarding presentation of Financial Statements of NGOs. Thus as per my opinion it is advisable to follow accounting of grants for ngos as per option C – Hybrid method, which is self explanatory and showing correct information.

Note – In all the above three methods, presentation of Receipts and Payment Accounts would not change.

For any questions or query hit the below comment section.

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Cashbook of NGO

After, note ban, cash book is getting more importance. Some of the entities also getting notice from Income Tax Department to submit cash book. So, let us today discussed, some of the points related to cash book.

1. Manual V/s Computerized Cash Book of NGO

Now a days, all the books of accounts are maintained on computer who are monitored using cheap 4k monitors for more quality, so it is difficult to find manual cash book of ngo. However, for better management and internal control purpose, it is required to have a Manual Cash Book along with the computerized cash book of NGO. There are many benefits to have manual cash book, like, daily cash checking and authorization, no cancellation or deletion, no rectification of amounts etc…

Thus if you maintained manual cash book along with the computerized cash book, that definitely increased the credibility of your accounting and control system.

2. Negative Cash Balance

For any reason, it is not accepted to go cash in a negative balance. Check the cash balance and see whether at any point of time it goes negative or not. To check negative cash balance in Tally go to cash book – F6 Daily breakup

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3. Unnecessary Withdrawals

Many a times major chunk of cash is withdrawn from bank for some event and event is cancelled later on.  At that time it is advisable to deposit the same amount to the bank. Many a times while checking cash book, it found that cash is withdrawn even though there was a enough cash balance on the books. This situation creates doubts about the genuine transactions of cash.

4. High and Law Cash balance

What should be  the average cash balance in the NGO. As such there is no such norms on the amount. However, it is advisable to keep low cash balance in the NGO. To check high and low cash balance in Tally,  go to Cash Book -> F6 Daily Breakup -> F12 Configure -> Show High Low Details – YES

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Hope this post on Cash book of NGO will give you some information on how your cash book should look. Check out your cash book and above points before its too late. Please give your comments and suggestion in the given below comment section.

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