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India FlagCivic Freedom Monitor: India
Introduction | At a Glance | Key Indicators | International Rankings
Legal Snapshot | Legal Analysis | Reports | News and Additional Resources
Last updated 18 August 2016
Update: On June 16, 2016, the Ministry of Home Affairs (MHA) cancelled “with immediate effect” the registration of the NGO Sabrang Trust under the FCRA 2010 for receiving funds from any ‘foreign source’. Sabrang Trust is run by civil rights activist Teesta Setelvad, who is known for espousing the cause of Gujarat riot victims, and has received funds from the US-based Ford Foundation, which was put on a “watch-list” following a Gujarat government complaint that it was interfering in India’s “internal affairs” and promoting “communal disharmony” through engagement with Setelvad’s NGO. The MHA argued that foreign funds received by Sabrang Trust under the FCRA license had not been used for the rightful purposes.
On May 5, 2016, the Lok Sabha (Lower House of Parliament) passed the Finance Bill 2016. Under the bill, charitable organizations would be liable for tax on “accreted income” under certain circumstances in which their charity registration is compromised. The Bill must now be approved by the Rajya Sabha (Upper House of Parliament) and then the President. (Please see the ‘Pending NGO Legislative / Regulatory Initiatives’ section below for more information.)
In addition, On March 29, 2016, the MHA issued a notice extending the deadline for filing online a renewal application for registration under the FCRA to June 30, 2016, and extending the validity of FCRA registration for organizations registered before the May 2011 enactment of FCRA 2010 to October 31, 2016. The application renewal requirement is pursuant to amended Foreign Contribution Regulation Amendment Rules issued by the MHA in December 2015. (Please see the “Barriers to Resources” section below for more information.)
Introduction
‘Civil Society’ is not a term commonly used in India, though in recent years the media has begun to use the term. Civil society in India is largely equated with voluntary organizations or the more colloquially used term – NGO, or Non-Governmental Organization. The Central Statistical Institute of India announced in about 2009 that there were 3.3 million NGOs registered in India or literally one NGO for every 400 Indian citizens. Guide-Star India (GSI) says it has the contact information of about 70,000 NGOs across India and nearly 5,000 have been registered on their portal (www.guidestarindia.org) after verifying the organization’s registration as an NGO, its unique identity based on its tax number, and its operational existence based on proof of an address as well as its voluntary consent to join the portal. There are also about 43,000 NGOs registered under the Foreign Contribution Regulation Act (FCRA).
The voluntary sector of India is noted for its vibrancy, innovation and research-based advocacy. It has played an important role in supporting government as a partner in nation building. Historically, Indian voluntary development organizations played three significant roles: first, in filling gaps in the government’s welfare systems, such as delivering basic services like health care, education, water and sanitation to the most remote locations in the country; second, in research-based advocacy, such as analyzing the efficacy and reach of various government projects to provide guidance to the government for policy change; and, third in working on a rights-based approach and entitlements. Groups work for marginalized communities in providing them access to basic services, and their modus operandi is primarily to educate and empower the community about their entitlements and review the government plans and policy for their efficacy.
Civil society in India has been fairly organized and active pre- and post-Independence in 1947. The legal regime in India follows common law (a British pre-Independence legacy). The legal framework is generally supportive of civil society. However, in practice, the government sometimes oversteps its ‘regulatory’ role and attempts to get into a ‘control’ mode.
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At a Glance
Organizational Forms Trusts, Societies and Companies
Registration Body State-level authorities.
Approximate Number 70,000 NGOs (according to Guide-Star India’s portal)
Barriers to Entry It can take up to a year to complete all the registration procedures.
Barriers to Operations The “advancement of any other object of general public utility” is not considered a charitable purpose under certain conditions. In addition, an institution or trust whose dominant object is political in character is said to not have been established for charitable purpose.
Barriers to Speech and/or Advocacy NGOs cannot engage in political or legislative activities such as endorsing candidates for public office.
Barriers to International Contact None.
Barriers to Resources Significant restrictions under Foreign Contribution Regulation Act 2010 (FCRA).
Barriers to Assembly Permission often required with conditions enforced, particularly at certain places; deportations and criminal sanctions against foreigners being ‘associated’ with protests; excessive force used often with wooden batons.
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Key Indicators
Population 1,251,695,584 (July 2015 est.)
Capital Delhi
Type of Government Federal parliamentary constitutional republic
Life Expectancy at Birth Male 66.97 years
Female 69.42 years (2015 est.)
Literacy Rate Male: 81.3%
Female: 60.6% (2015 est.)
Religious Groups Hindu 79.8%, Muslim 14.2%, Christian 2.3%, Sikh 1.7%, other and unspecified 2% (2011 est.)
Ethnic Groups India has more than 2,000 ethnic groups
GDP per capita $5,900 (2014 est.)
Source: The World Factbook. Washington, DC: Central Intelligence Agency, 2015.
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International Rankings
Ranking Body Rank Ranking Scale
(best – worst possible)
UN Human Development Index 130 ( 2015) 1 – 187
World Bank Rule of Law Index 54.3 (2014) 100 – 0
World Bank Voice & Accountability Index 61.1 (2014) 100 – 0
Transparency International 76 (2014) 1 – 168
Freedom House: Freedom in the World Status: Free
Political Rights: 2
Civil Liberties: 3 (2016) Free/Partly Free/Not Free
1 – 7
1 – 7
Foreign Policy: Fragile States Index
68 (2015) 178 – 1
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Legal Snapshot
International and Regional Human Rights Agreements
Key International Agreements Ratification* Year
International Covenant on Civil and Political Rights (ICCPR) Yes 1979
Optional Protocol to ICCPR (ICCPR-OP1) No –
International Covenant on Economic, Social, and Cultural Rights (ICESCR) Yes 1979
International Convention on the Elimination of All Forms of Racial Discrimination (ICERD) Yes 1968
Convention on the Elimination of All Forms of Discrimination Against Women (CEDAW) Yes 1993
Optional Protocol to the Convention on the Elimination of Discrimination Against Women No –
Convention on the Rights of the Child (CRC) Yes 1992
International Convention on the Protection of the Rights of All Migrant Workers and Members of their Families (ICRMW) No –
Convention on the Rights of Persons with Disabilities (CRPD) Yes 2007
Regional Treaties
South Asian Association for Regional Cooperation (SAARC) Yes 1979
Shanghai Cooperation Organisation (SCO) Yes 2014
* Category includes ratification, accession, or succession to the treaty
Constitutional Framework
The right of all citizens to form associations or unions is guaranteed by the Constitution of India, Article 19(1)(c).
Article 19 guarantees the following six freedoms:
Freedom of ‘speech and expression’, which allows an individual to take part in public activities. Though the words “freedom of press” are not mentioned in Article 19,” freedom of expression” also encompasses “freedom of press”. However, reasonable limitations can be imposed to maintain public order and to protect decorum and the dignity of the State.
Freedom to ‘assemble peacefully without arms’, though the State can enforce reasonable limitations to maintain public order and the autonomy and integrity of India.
Freedom to ‘form associations or unions’, with certain restrictions enforced by the State in the interest of public order, morality and the sovereignty and integrity of India.
Freedom to ‘move freely throughout the territory of India’, subject to certain restrictions to maintain the interest of the general public. For instance, the state can restrict travelling or commuting during epidemics to prevent it from spreading.
Freedom to ‘live and settle in any part of the territory of India’, subject to certain limitations by the State to maintain the interest of the general public or to safeguard the rights of the native scheduled tribes and protect them from exploitation and oppression.
Freedom to ‘practice any profession or to carry on any occupation, trade or business’. Here the state may impose justified limitations to protect the general public. Thus, nobody according to the Indian Constitution has the right to run a business which is hazardous or corrupt. Again, to practice any profession or carry out any particular business, professional or technical qualifications may be prescribed.
Non-profit organisations in India must not engage in political campaign activities or legislative activities. Indian not-for-profit entities may “lobby” for non-political causes, however, provided that such activity promotes “general public utility” and is incidental to the attainment of the charity’s objects. Societies may have as their primary objective the diffusion of political education. [Societies Registration Act, 1860, Section 20] In addition, under the Foreign Contributions Regulation Act, not-for-profit organizations involved in political activities cannot receive foreign contributions.
National Laws and Regulations Affecting Sector
1. Indian Trusts Act 1882
2. Societies Registration Act 1860
3. Bombay Public Trusts Act 1950
4. Foreign Contribution Regulation Act 2010
5. Indian Companies Act 2013
6. Direct Tax Code (replacing the Income Tax Act 1961)
7. Foreign Contribution Regulation Amendment Rules (2015)
Pending NGO Legislative / Regulatory Initiatives
I. Finance Bill
There were two key developments on February 29, 2016 and May 5, 2016, which are discussed below.
First, on February 29, 2016, Finance Minister Mr. Arun Jaitley presented the Finance Bill / Union Budget 2016-17 to the Parliament. The budget presents five main issues of concern or interest to the voluntary sector in India:
1) Levy of tax where a charitable institution ceases to exist or converts into a non-charitable organization.
A charitable Trust, Society, Section 8 Company, or an institution carrying on charitable activities may voluntarily wind up its activities and dissolve, merge with any other charitable or non-charitable institution, or convert into a non-charitable organization. In such a situation, the existing Income Tax Act does not provide clarity on how the assets of such a charitable institution should be addressed.
In order to ensure that the intended purpose of tax exemptions availed by a trust or institution is achieved, a specific provision in the Act is required for imposing a levy, in the nature of an exit tax which is triggered when the organization is converted into a non-charitable organization, merges with a non-charitable organization, or does not transfer the assets to another charitable organization.
Accordingly, the Budget proposes to amend the provisions of the Income Tax Act and introduce a new Chapter to provide for levy of additional income tax in case of conversion into a non-charitable form, merger with a non-charitable form, or transfer of assets of a charitable organization on its dissolution to a non-charitable institution.
2) Phasing out of Deductions and Exemptions
The Finance Minister in his Budget Speech, last year had indicated that the rate of corporate tax will be reduced from 30% to 25% over the next four years along with corresponding phasing out of exemptions and deductions.
a) Phasing out 35AC – Expenditure on eligible projects or schemes
Currently, donors enjoy 100% tax deduction on donations given to institutions having registration under 35AC. The budget proposes that no deduction shall be available starting April 1, 2017 (i.e. financial year 2017-18 and subsequent years).
b) Phasing out 35CCD – Expenditure on skill development project.
Currently, a weighted deduction of 150% can be enjoyed on any expenditure incurred (except expenditures in the nature of cost of any land or building) on any notified skill development project by a company. However, the budget proposes to reduce the deduction to 100 percent starting April 1, 2020 (i.e. from financial year 2020-21 and subsequent years).
c) Phasing out Section3 5(1)(ii) – Expenditure on scientific research.
Currently, the available tax deduction is 175% of any sum paid to an approved scientific research association, which has the object of undertaking scientific research. A similar deduction is also available if a sum is paid to an approved university, college, or other institution and if such sum is used for scientific research.
The budget now proposes to phase this out as follows: Deduction shall be restricted to 150% starting April 1, 2017 to March 31, 2020 (i.e. from financial year 2017-18 to financial year 2019-20) and deduction shall be restricted to 100% starting from April 1, 2020 (i.e. from financial year 2020-21 onwards).
d) Phasing out 35(1)(iii) – Expenditure on research in social science or statistical research.
Currently, weighted deduction from business income is allowed up to 125% of contribution to an approved research association, university, college, or other institution to be used for research in social science or statistical research.
The budget now proposes that deduction shall be restricted to 100% starting on April 1, 2017 (i.e. from financial year 2017-18 and subsequent years).
3) Service Tax
Last year, the Finance Minister raised service tax rates from 12.36% (including education cess) to 14%; this was later bolstered by a 0.5% cess for “Swachh Bharat.”
In this Budget, the Finance Minister has not raised service tax, but he has announced a “Krishi Kalyan” cess of 0.5%, which be levied on all services.
As a result, the total service tax liability, including the new cess announced, will now rise to 15%.
Service tax is levied on all services except for a small Negative List.
The Negative List entry covering ‘educational services by way of (a) pre-school education and education up to higher and secondary school or equivalent, (b) education as a part of a curriculum for obtaining a qualification recognized by any law for the time being in force and (c) education as a part of an approved vocational education course and the definition of ‘approved vocational education course’ are being omitted. However, the exemption shall continue by way of exemption notification No. 25/2012 – ST.
4) Amendment to FCRA 2010
In the Foreign Contribution (Regulation) Act, 2010, the following proviso shall be inserted in Section 2(1)(j)(vi) and shall be deemed to have been inserted with retroactive effect from September 26, 2010, namely:
“Provided that where the nominal value of share capital is within the limits specified for foreign investment under the Foreign Exchange Management Act, 1999, or the rules or regulations made there under, then, notwithstanding the nominal value of share capital of a company being more than one-half of such value at the time of making the contribution, such company shall not be a foreign source.”
This will mean that companies like HDFC Ltd. and Axis Bank, which are companies registered under the Indian Companies Act and have more than 50% foreign direct investment will no longer be treated as a ‘foreign source’ under the FCRA 2010. This will also benefit their NGO partners that do not have FCRA registration or prior permission.
5) Corporate Social Responsibility (CSR)
The Finance Minister announced nine focus areas of development, including education, skills, and job creation.
It is proposed to set up a Higher Education Financing Agency (HEFA) with an initial capital base of Rs. 1,000 crores. The HEFA will be a not-for-profit organization that will leverage funds from the market and supplement them with donations and CSR funds, according to the Finance Minister: “These funds will be used to finance improvement in infrastructure in our top institutions and will be serviced through internal accruals.”
Companies may feel more incentivized to give to HEFA if there is tax deduction. Also, it makes CSR reporting easy, and the shift from accountability moves from the company to the ‘Government NGO’ (GONGO).
Second, on May 5, 2016, the Lok Sabha (Lower House of Parliament) passed the Finance Bill 2016. It was introduced on February 29, 2016, but was since modified.
Where charitable organizations are concerned, the following is of interest:
1) Tax on Accreted Income of Trusts
The Finance Bill, 2016 proposed to insert a new Chapter XII-EB, containing Section 115TD, 115TE and 115TF, to provide that ‘accreted income’ of a trust or institution registered under section 12AA shall be liable for tax at the maximum marginal rates in the following circumstances:
(a)
If the trust or institution gets converted into any form which is not eligible under section 12AA;
(b)
If the trust or institution gets merged into any entity which is not eligible under section 12AA;
(c)
If the trust or institution, in case of dissolution, fails to transfer its assets to exempt entities under section 12AA and section 10(23C) (iv), (v), (vi) & (via).
The difference between the fair market value of the assets and liabilities of the trust or institution would be treated as ‘accreted income’ and tax thereon shall be paid in addition to the income-tax chargeable in respect of the total income of such trust or institution.
The Finance Bill, 2016 as passed by the Lok Sabha makes certain changes in the proposed Section 115TD, as under:
A. Assets which do not form part of accreted income
A proviso is inserted in Section 115TD to provide that the value of the following assets shall not be taken into consideration while computing the ‘accreted income’:
(a)
Any asset acquired by a trust or institution out of its agricultural income.
(b)
Any asset acquired by the trust before getting registered under Section 12AA, provided that no exemption under section 11 or 12 is given to a trust or institution during that period.
B. Time-limit to pay tax on accreted income
As per Section 115TD, a trust or an institution shall be deemed to have been converted into any form not eligible for registration under Section 12AA in a previous year upon the occurrence of the following events:
(a)
When registration granted to it under Section 12AA has been cancelled; or
(b)
It has adopted or undertaken modification of its objects which do not conform to the conditions of registration and it:
■
has not applied for fresh registration under Section 12AA in the said previous year; or
■
has filed for fresh registration under Section 12AA, but the said application has been rejected.
The Finance Bill also proposed that the tax on accreted income shall be payable within 14 days from the date of receipt of an order cancelling registration or the date of order rejecting an application for fresh registration. The version of the bill passed by the Lok Sabha proposed instead that tax on accreted income shall be paid within 14 days from:
(a)
The date on which the period for filing appeal before the Income Tax Appellate Tribunal (ITAT) against the order cancelling the registration (or order rejecting the application) expires, if no appeal has been filed by the trust or the institution; or
(b)
The date on which the order in any appeal, confirming the cancellation of the registration (or application), is received by the trust or institution.
The bill will now require approval of the Rajya Sabha (upper house), after which it will be sent to the President for his assent.
We are currently unaware of any other pending initiatives. Please help keep us informed; if you are aware of pending initiatives, write to ICNL at ngomonitor@icnl.org.
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Legal Analysis
Organizational Forms
An NGO can register itself first at the state level either as a ‘public charitable trust’ or as a ‘society’ under the Act of 1860 or as a ‘company’ under Section 8 (Section 25 under the old Indian Companies Act 1956) of the Indian Companies Act 2013.
While the Indian Companies Act 2013 is central/federal legislation, the Trusts Acts and Societies Acts vary from state to state. In Maharashtra State, for example, there is the Bombay Public Trusts Act 1950. The same Act is applicable in neighboring Gujarat State, but with some variations. In states that do not have a Trusts Act, the principles of the Indian Trusts Act 1882 apply. The Societies Registration Act 1860 also varies from state to state. For example, a society registered in Maharashtra or Gujarat does not require periodic renewal of registration. However, societies registered in the northeastern states require annual renewal of registration.
To enjoy tax exemption and provide tax deductions to donors, NGOs must register “u/s 12AA” and “u/s 80G” respectively under the Income Tax Act 1961.
Every NGO receiving funds from ‘foreign sources’ requires either prior permission or registration under the Foreign Contributions Regulation Act (FCRA) 2010.
Apart from these key pieces of legislation there may be Labour Laws, Service Tax and VAT laws also applicable depending on the size or nature of activities undertaken by an NGO. For example, the Employees’ Provident Fund would be mandatory for any NGO employing more than 20 employees (voluntary if less than 20 employees). Service tax would apply if revenue from activities such as ‘consulting’ exceeds a sum of 1,000,000 Indian rupees in any fiscal year
Trusts
Public charitable trusts may be established for a number of purposes, including poverty relief, education, medical relief, the provision of facilities for recreation, and any other objective of general public utility. Indian public trusts are generally irrevocable. No national law governs public charitable trusts in India, although many states, particularly Maharashtra, Gujarat, Rajasthan, and Madhya Pradesh, have Public Trusts Acts. In states such as these, a trust can be registered with the State Charity Commissioner. In states where there is no Charity Commissioner or a Trusts Act in force, the Deed of Trust may simply be registered with the office of the Registrar of Deeds/Assurances.
Societies
Societies are membership organizations that may be registered for charitable purposes. They are usually managed by a governing council or a managing committee and are regulated by the Societies Registration Act 1860, which has been adopted by various states. Unlike trusts, societies may be dissolved. Virtually every state in India has a Registrar of Societies where a society can be registered.
Companies
The Indian Companies Act 1956 has been replaced by the new Indian Companies Act 2013. The new Act came into force on April 1, 2014 and the old Section 25 has now become Section 8 with further additions.
According to Section 8: “The Central Government may issue a License to:
A Limited or Private Limited Company having as its objects:
The promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object and
Intends to apply its profits, if any, or other income in promoting its objects and
Intends to prohibit the payment of any dividend to its members.
Thus, a not-for-profit company may be registered with the Registrar of Companies.
Public Benefit Status
To be eligible for tax exemption under the Income Tax Act 1961, a not-for-profit entity must be established for religious or charitable purposes. Charitable purposes include “relief of the poor, education, medical relief, and the advancement of any other object of general public utility.” The Finance (No.2) Act 2009 added “preservation of environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest” to the list of charitable purposes.
Earlier institutions established for a “charitable purpose” falling under the category of “advancement of any other object of general public utility” were under threat of losing their tax exemption if income from their “business activity” exceeded Rs. 2.5 million during the financial year. This provision has been amended with a requirement that any activity related to trade, commerce or business or any activity rendering any service in relation to any trade, commerce or business for a cess [tax] or fee or any other consideration, irrespective of the nature of use or application or retention of the income from such activity, must meet the following criteria:
Such activity must be undertaken in the course of actual carrying out of such advancement of any other object of general public utility and
The aggregate receipts from such activity or activities during the previous year do not exceed twenty per cent of the total receipts of the trust or institution under such activity or activities of that previous year.
Public charitable trusts, by definition, must be created for the benefit of the public. Societies may be registered for charitable purposes, among other purposes. Section 25/8 companies are formed for the purposes of promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of the environment or any other object.
Barriers to Entry
The law does not specifically or explicitly prohibit the formation and operation of “unregistered” groups. In fact the Income Tax Act 1961 recognizes both registered and unregistered ‘Associations of Persons’ (AOP). The Ministry of Home Affairs also makes it clear that FCRA registration/prior permission would be mandatory for every association (registered or unregistered) intending to receive contributions from any foreign source.
There are no sanctions or penalties for carrying out activities through an unregistered organization, except tax implications.
A trust, society or Section 8 company can be established by either a company or individuals. A trust or company can be established by two individuals whereas a society requires seven founding members. A trust may be settled with a token sum of money (Rs. 500/-) which would then be considered ‘Trust Property’. A society would require no initial capital and a Section 8 company can be established with or without share capital.
Under the Indian Trusts Act 1882, “a trust may be created by every person competent to contract”. Under Indian Contract Act, 1872, “Every person is competent to contract who is of the age of majority according to the law to which he is subject, and who is of sound mind and is not disqualified from contracting by any law to which he is subject.”
There is no specific bar on foreigners as founders or trustees under:
1) The Bombay Public Trusts Act 1950;
2) The Indian Companies Act 2013;
3) The Societies Registration Act 1860; or
4) The Income Tax Act 1961.
There is a specific bar only under the FCRA, which applies only if the NGO is seeking a foreign contribution.
Registration fees are nominal. However, systems and processes grind slowly. Often it takes several months and sometimes up to a year to get all the registrations. FCRA applications are required under law to be disposed within a period of 3 months but it generally takes much longer. Government has the right to deny registration or even suspend or cancel an existing registration (income tax exemption or an FCRA registration) under certain circumstances (violation of any provision of the statute or the rules there under) but by due process and procedure including giving the NGO an opportunity to be heard. In case of refusal or cancelation of registration, the NGO would have the right of redress before a higher competent authority.
Generally as long as the objects of the NGO as stated in its charter document are for ‘charitable purpose’ there would be delay but not denial of registration. An existing registration may be cancelled for reasons such as not functioning as per the stated objects, failure to file returns or violation of any provision of the law.
Barriers to Operational Activity
As long as the activities of the NGO are within the framework of ‘charitable purpose’ the law does not impose burdens or constraints relating to operations.
According to Section 9(1) of the Bombay Public Trusts Act 1950 “charitable purpose” includes:
Relief of poverty or distress
Education
Medical relief
Provision for facilities for recreation or other leisure-time occupation (including assistance for such provision) if the facilities are provided in the interest of social welfare and public benefit
The advancement of any other object of general public utility, but does not include a purpose which relates exclusively to religious teaching or worship.
According to Section 2(15) of the Income tax Act 1961 “charitable purpose” includes:
Relief of the poor
Education
Medical relief
Preservation of the environment (including watersheds, forests and wildlife)
Preservation of monuments or places or objects of artistic or historic interest
The advancement of any other object of general public utility.
Amendments made under the Finance Acts of 2008, 2010, 2011 and 2015 have affected all organizations falling under the sixth category – “The advancement of any other object of general public utility.”
According the Finance Act 2015 amendment: “the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, unless––
(i) such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and
(ii) The aggregate receipts from such activity or activities during the previous year do not exceed twenty per cent of the total receipts, of the trust or institution undertaking such activity or activities, of that fiscal year.
One could argue that “improvement of democracy and governance in India through political and electoral reforms” could be deemed as a charitable purpose under the category “Advancement of any other object of general public utility” as long as the organization is not involved in “carrying on of any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for any fee, tax or other consideration,” even if the aggregate value of receipts from such activity does not exceed twenty percent of the total receipts of the trust or institution in that fiscal year.
However, courts in India have held that an institution or trust whose dominant object is political in character cannot be said to have been established for charitable purpose [LokamanyaTilak Jubilee National Trust Fund, [1942] 10 ITR 26 (Bom.); CIT v. All India Hindu Mahasabha [1983] 140 ITR 748 (Delhi)]. In that case, a trust was created to give effect to the wishes of Lokmanya Tilak as expressed in his will. The trust was created for spreading political education through the Kesari and Maratha newspapers to make people aware of their political rights and rouse them for demanding changes in the structure of the country’s administration. However, the Supreme Court held that the trust was not a public charitable trust as defined under the Bombay Public Trusts Act.The position is summarized in Halsbury’s Laws of England: “A trust for the attainment of political objects is invalid, not because it is illegal – for everyone is at liberty to advocate or promote by any lawful means a change in the law, but because the court has no means of judging whether a proposed change in the law will or will not be for the public welfare or benefit, and therefore cannot say that a gift to secure the change is a charitable gift.” This argument was also advanced by Lord Parkar in Bowman v. Secular Society Limited.
Political purposes include, but also extend beyond, the support of political parties or of those seeking political office. Supporting or opposing a change to the law or government policy is a political purpose and not a charitable purpose. Also, attempts to sway public opinion on controversial social issues are legitimate and lawful but not charitable.
A purpose pursued by an NGO would be considered political if:
It is concerned with party politics,
It involves the dissemination of ‘propaganda’ for some cause or
It involves seeking changes to the law, or to the administration of the law, or to government policy.
It is the third of these notions of ‘political’ that creates difficulties for activist welfare organizations. The judicial reasoning that has induced English courts and other Commonwealth country courts, including India, to include activities such as advocating changes to the law within the notion ‘political’ is as follows:
A purpose cannot be held to be charitable unless it is beneficial to the public. Accordingly, when a court has to decide whether a trust or other organization which aims to change the law (or for that matter to change the administration of the law, or some government policy) is charitable, it must determine whether the change sought would be beneficial. But a court, whose task is to resolve disputes according to existing law, cannot rule on whether a particular change to the law would or would not be beneficial.
Every NGO is independent where matters concerning internal governance are concerned. The government has the right to ‘regulate’ but not ‘control’ the internal affairs of an NGO. Fines and penalties may be imposed for compounding certain irregularities such as not filing returns in time. NGOs may also be subject to random financial or tax assessments by the regulatory authorities.
Barriers to Speech / Advocacy
There are no specific restrictions on the ability of NGOs to criticize the Government or to advocate for politically unpopular causes, including issues of human rights and democracy. However, NGOs cannot engage in political or legislative activities such as endorsing candidates for public office. NGOs have nonetheless often been successful in advocacy work, especially on issues such as ‘Child Rights’ and marginalized communities and thus indirectly influence the drafting of more enabling laws and policies.
In addition, On March 24, 2015, India’s Supreme Court declared Section 66A of the Information Technology Act (“IT Act”) as unconstitutional. Prior to this, section 66A of the IT Act was often misused by politicians, political parties and their followers to silence critics through the power to arrest and jail those who spoke their minds, especially on social media. As a result of the decision, content on the Internet cannot be taken off without a court order and there is no longer the threat of arrest for posting content on the Internet. The court, however, still upheld the validity of section 69B and the 2011 guidelines for the implementation of the IT Act, which allow the government to block websites if their content has the potential to create communal disturbance, social disorder or affect India’s relationship with other countries.
Barriers to International Contact
There are no specific restrictions on the ability of NGOs to contact and cooperate with colleagues in civil society, business and government sectors within India. As of November 2014, neither the law nor government imposes restrictions on participating in networks or on accessing the Internet.
Barriers to Resources
1. Foreign Contributions Regulation Act 2010 (FCRA)
Under the Foreign Contribution Regulation Act 2010 (FCRA), all NGOs in India, such as public charitable trusts, societies and Section 8 companies, wishing to accept foreign contributions must: a) register with the Central Government; b) agree to accept contributions through designated banks; and c) maintain separate books of accounts with regard to all receipts and disbursements of funds.
NGOs are required to report the amount of the foreign contribution, its source, the manner in which it was received, the purpose for which it was intended, and the manner in which it was used. Foreign contributions include currency, securities, and articles. Funds collected by an Indian citizen in a foreign country on behalf of an NGO registered in India are considered foreign contributions. Moreover, funds received in India, in Indian currency, if from a foreign source, are considered foreign contributions.
Under FCRA 2010, a foreign contribution does not include commercial receipts. NPOs can receive consultancy or other commercial receipts from foreign sources even without FCRA registration. FCRA-registered NGOs should receive such receipts in their domestic account, and such commercial receipts are not required to be reported to the FCRA department.
FCRA guidelines require that an organization allowed to receive funds from a foreign source may provide funds from its FCRA account to another organization only if the other organization also has clearance from the Home Ministry to receive funds from a foreign source.
If the foreign donor agency specifies in writing that the whole or part of the grant may be directed to the recipient organization’s capital fund or endowment, the organization may do so. Such an endowment or capital fund may be invested in an approved security.
The “interest” or “dividend” generated should be accounted for as an amount received by way of interest on a deposit drawn out of funds received from a foreign source. In other words, even the interest or dividend received in India, in Indian rupees, must be disclosed in the Return. Contributions from an expatriate Indian are not considered “foreign contributions” if the individual has not become a citizen of a foreign country.
The government has blacklisted dozens of NGOs for failing to adhere to different aspects of the FCRA, including 69 NGOs in March 2015 alone. In addition, on March 3, 2015, the Ministry of Home Affairs cancelled the FCRA registration of 1,142 NGOs that received funding from foreign sources in one state – Andhra Pradesh – for failure to file Annual Returns for the years 2009 to 2012.
On June 16, 2016, the Ministry of Home Affairs (MHA) cancelled “with immediate effect” the registration of the NGO Sabrang Trust under the FCRA for receiving funds from any ‘foreign source’. Sabrang Trust is run by civil rights activist Teesta Setelvad, who is known for espousing the cause of Gujarat riot victims, and has received funds from the US-based Ford Foundation, which was put on a “watch-list” following a Gujarat government complaint that it was interfering in India’s “internal affairs” and promoting “communal disharmony” through engagement with Setelvad’s NGO. The MHA argued that foreign funds received by Sabrang Trust under the FCRA license had not been used for the rightful purposes.
2. Foreign Contribution Regulation Rules
In December 2015, the Ministry of Home Affairs (MHA) issued amended Foreign Contribution Regulation Amendment Rules. The application process for registration under the Foreign Contributions Regulation Act (FCRA) is now completely online and reporting requirements on foreign contributions have increased significantly. The MHA subsequently issued a circular dated December 14, 2015 notifying that application for renewal of FCRA Registration must now be made online at fcraonline.nic.in. TThe last date for filing a renewal application was extended to March 15, 2016, and then extended again to June 30, 2016. The validity of FCRA registration for organizations that were registered before the enactment of FCRA 2010 was extended to October 31, 2016. Previously, the deadline was October 31, 2015 for organizations that were registered before the 2010 FCRA came into force on May 1, 2011. Under the new system there is no need to post hard copies, and fees can be paid online.
Under the amended Foreign Contribution Regulation Rules:
Application for new registration, prior permission, or renewal of existing registration must now be made in the new Form FC 3.
The application must be digitally signed.
Applications sent by post will not be accepted. The process is now compulsorily online. Payment of processing fees has also been made electronic.
Previously organizations that received foreign contribution in excess of 10 million rupees (about $146,000) were required to put in the public domain summary information about the receipt and utilization of foreign contributions for the year of receipt and one year thereafter. Under the new Rules, every person receiving foreign contribution, regardless of the amount received, is required to post on one’s own website or on the government’s website the annual audited statement of accounts of receipt and utilization. This reporting must include income and expenditure statements, receipt and payment accounts, and balance sheets, and must be completed within nine months of the end of the financial year when the foreign contribution was received.
Organizations receiving foreign contributions are now required to post quarterly statements containing details of foreign contributions received on its own website or the government’s website within 15 days of the completion of a quarter of a financial year giving details of donors, amounts of foreign contribution received, and dates of receipt.
Banks are now required to report within 48 hours to the government any foreign contribution received by any person, including those having registration or prior permission under the FCRA.
An NGO that is registered under the FCRA but does not receive foreign contributions may continue to file annual returns in the new Form FC 4 to keep the registration alive. However, such organizations have been exempt from filing certificates issued by chartered accountants or income and expenditure statements, along with receipt and payment accounts and balance sheets.
NGOs are now required to notify the government of change of name or address within 15 days. Similarly, the government must be notified within 15 days of changes to an NGO’s nature; objectives; registration with local or relevant authorities; or bank, bank branch, or designated bank account number for foreign contributions, or of replacement of 50% or more of “key members” of the organization. The term “key members” has not been defined, though it likely would include key office bearers like President, Secretary, or “Chief Functionary.”
Annual returns must be filed in the new Form FC 4, along with an “affirmation” that the NGO has “not used the foreign funds for activities that are likely to prejudicially affect the sovereignty and integrity of the country, the security, strategic, scientific and economic interests of the State and the public interest.” Organizations that work on human rights issues, legal rights, policy, governance, electoral reform, and other sensitive issues, are likely to be affected by this provision.
Domestic Funding
An NGO may mobilize funds in every lawful manner including by way of soliciting donations and grants or sponsorships or organizing fundraising events.
Under amendments to Section 11(4A) of the Income Tax Act, 1961, an NGO is not taxed on income from a business that it operates that is incidental to the attainment of the objects of the NGO, provided that the entity maintains separate books and accounts with respect to the business. Furthermore, certain activities resulting in profit, such as renting out auditoriums, are not treated as income from a business.
The Finance Act, 2008 had changed the definition of “charitable purpose” such that the “advancement of any other object of general public utility” would not be considered a “charitable purpose” if it involved carrying on any activity in the nature of trade, commerce, or business, or any activity rendering services in relation to trade, commerce, or business for a fee, tax, or other consideration. However, the Finance Act, 2015 limited this exception by exempting the aggregate value of the receipts from such activities up to 20% of the total receipt of the trust or institution in that fiscal year.
Barriers to Assembly
The Indian Constitution confers a fundamental right on all citizens ‘to assemble peaceably and without arms’. While prior to the Constitution coming into force, the right to assemble could have been abridged or taken away by law, now that cannot be done except by imposing reasonable restrictions “in the interests of the sovereignty and integrity of India or public order” within Article 19(3) of the Constitution. However, the right to assemble does not mean that the right can be exercised at any and every place. In Railway Board v. Narinjan Singh , AIR 1969 SC 966: (1969) 1 SCC 502: (1969) 3 SCR 548, it was held that “although the citizens of India have freedom of speech, freedom to assemble peaceably and freedom to form associations or unions, it does not mean that they can exercise those freedoms in whatever place they please.”
Restrictions have to be reasonable and usually refusals to permit an assembly or procession are to be accompanied by reasons for refusal. The law cannot disallow spontaneous demonstrations on the same principles of fundamental right to peaceful assembly and freedom of speech and expression. However, there can be arrests for not receiving permission for an assembly. Restrictions can be imposed when permissions are granted.
For example, in August 2011, Team Anna Hazare provided to the Delhi police its agreement to 16 of the 22 conditions set by the Delhi Police for holding Hunger Fasts in protest at the Jayaprakash Narayan Park. However, the team refused to accept the police conditions to vacate the park on the evening of August 18, restrict the number of protesters to 4,000-5,000 people, allow government medical officers to examine those participating in the fast three times a day, not use loudspeakers or a public address system, ensure that only 50 cars and 50 two-wheelers were parked around the venue, and not to erect a shamiana (temporary canopy) on any road.
The plan was submitted by Neeraj Kumar, a member of India Against Corruption, to the Deputy Commissioner of Police (Central) Vivek Kishore at his office. The six conditions were unconstitutional and hence rejected by the Team. However, the police were ready with their reply and told Kumar that permission could not be granted. For their part, the police said permission was denied as the most important conditions were rejected by the Team. The police barricaded the area and no one was allowed to enter without permission. The police threatened to invoke Section 144 (Arrests by a Magistrate) of the Code of Criminal Procedure 1973 for which a magistrate can impose a prohibition against an assembly of 5 or more persons. But, again, the courts in India opined that this restriction cannot be exercised arbitrarily if there is no danger to the public or property.
In India, many ‘political’ gatherings take place without overt objection from the state or police. But where there is violence anticipated (e.g. when a politician and his followers come into a state when some high profile incident takes place), permissions have been denied to enter and to hold rallies.
Under law, no particular category of persons or groups is restricted from organizing or participating in assemblies. However, with the recent kudakulam and POSCO plant agitations there have been deportations and criminal sanctions against foreigners being ‘associated’ with these protests.
During an assembly, megaphones can be prohibited. Long ago the Anand Margis (a religious group) were forbidden from taking their skull dancing onto the streets. Symbols are not specifically prohibited. However, when passing through certain sensitive areas, say a Hindu procession going through a Muslim area, they could be prohibited from raising slogans or overtly provocative symbols. That would be considered to be a reasonable restriction. There are many permutations and combinations and the discretion given to Magistrates and the Police is wide – in that it is the circumstance that would decide what ‘reasonable restrictions ‘ amount to – and it is difficult to specify what could be permitted or not permitted. A magistrate or the police’s action would be circumstantial.
The law does not specifically prevent people from exchanging information, planning or communicating about protests either within the country, with foreigners, or online.
In recent history there have been instances of the state using excessive force to break up assemblies, which news channels have widely reported. There are clear protocols for crowd control under the Police Act. There is the need for a magistrate to be around before gunfire can occur, though the police also have powers in this area. Lathi charges (beating crowds with wooden batons) are resorted to most often. These are often violent. However, in areas where there is strong media scrutiny (e.g. cities like Mumbai and Delhi) there is much more care about how crowds are controlled and processions and protests dealt with. In Mumbai, the police are quite good at controlling huge crowds especially around festive occasions like Ganesh Utsav during which thousands of devotees throng the streets.
Generally, the State provides sufficient protection to the organizers and participants in assemblies. However, it is also a fact that the level of police response has much to do with the politics of the situation and on the level of the state police’s abilities.
The law does not specifically address counter-demonstrations. They are treated as demonstrations and not necessarily counter demonstrations. The effort is to acknowledge both and keep them both peaceful. There is no protocol specifically for counter-demonstrations.
