A Guide to NGO Eligibility for CSR Funding in India

The Corporate Obligation: Who Must Contribute to CSR?

The legal foundation for CSR in India is laid out in Section 135 of the Companies Act, 2013. This section mandates that certain companies must constitute a Corporate Social Responsibility Committee. This applies to companies that meet any of the following financial thresholds during the immediately preceding financial year:

• Net worth of ₹500 Crore or more
• Turnover of ₹1,000 Crore or more
• Net profit of ₹5 Crore or more.

This committee, typically comprising three or more directors (with at least one independent director, where applicable), is responsible for formulating and overseeing the company’s CSR policy and activities. These obligated companies are required to spend at least 2% of their average net profits of the preceding three financial years on CSR activities.

Eligible Partners for CSR Funding Initiatives

Companies fulfilling the CSR criteria can implement their social responsibility initiatives either directly or through various types of eligible entities. The Companies (CSR Policy) Rules, 2014, as amended, outline the types of organizations that can receive CSR funds:

1. Company-Established Entities: A company formed under Section 8 of the Companies Act, a Registered Public Trust, or a Registered Society, which are themselves registered under Section 12A and Section 80G of the Income Tax Act, 1961, and are established by the funding company (either individually or jointly with other companies).
2. Government-Established Entities: A company formed under Section 8 of the Companies Act, a Registered Trust, or a Registered Society established by the Central Government or a State Government.
3. Statutory Bodies: Any entity established under an Act of Parliament or a State Legislature.
4. Experienced Independent Entities: A company formed under Section 8 of the Companies Act, or a registered public trust, or a registered society, that is already registered under Section 12A and Section 80G of the Income Tax Act, 1961, and has a demonstrated track record of at least three years in undertaking similar social activities.

The Mandate of Form CSR-1 Registration

A significant amendment introduced by the Ministry of Corporate Affairs (MCA) on January 22, 2021, through the Companies (CSR Policy) Amendment Rules, 2021, made it mandatory for all entities involved in CSR activities to register by filing Form CSR-1 with the MCA. This applies to societies, trusts, Section 8 companies, and any other eligible entity seeking CSR funds from corporations. This registration aims to ensure greater transparency and effective monitoring of CSR spending across the country.

Completing Form CSR-1: Form CSR-1 has two main parts:

• Part 1: Requires details about the nature and legal status of the entity.
• Part 2: Requires certification from a practicing professional such as a Chartered Accountant, Company Secretary, or Cost Accountant, attesting to the accuracy of the information.

To complete Part 1 of Form CSR-1, an NGO will typically need the following documents:

1. Registration Certificate: This includes the Certificate of Incorporation for a Section 8 Company, the Society Registration certificate for a Society, or the registration document under the State Public Trust Act, if applicable.
2. 12A Certificate: A valid certificate issued under Section 12A of the Income Tax Act, 1961, by the Director of Income Tax (Exemptions). This grants income tax exemption to the NGO. (It’s important to note that entities registered under Section 10(23C) of the Income Tax Act are generally not eligible to register in Form CSR-1).
3. 80G Certificate: A valid certificate issued under Section 80G of the Income Tax Act, 1961, by the Commissioner of Income Tax (Exemptions). This allows donors to claim tax deductions on their contributions to the NGO.

Demonstrating a Track Record: The Three-Year Review

For NGOs that are not established directly by the funding company or by the government, proving an “established track record of at least three years” in undertaking similar activities is a crucial requirement. Corporate CSR committees undertake a thorough review of the NGO’s past activities to assess its credibility and effectiveness. This review typically involves examining:

1. Audited Financial Statements: Financial reports for the last three completed financial years, duly audited by a Chartered Accountant, provide a clear picture of the NGO’s financial health and utilization of funds.
2. 12A and 80G Registration Dates: Verification of the dates when the NGO obtained its 12A and 80G registrations.
3. Form 10B: The audit report in Form 10B for the past three financial years, which provides details about the application of income for charitable or religious purposes.
4. Nature of Activities: A comprehensive note detailing the types of activities and programs carried out by the NGO in previous years.
5. Income Tax Returns: Copies of income tax returns and computation of income for the past three years.
6. Details of Past CSR Projects: Information on any CSR projects previously undertaken by the NGO, including project descriptions, outcomes, and funding sources.
7. Assessment Orders: Any assessment orders from the Income Tax Department, if available, can further verify the nature and legitimacy of the NGO’s activities.

Selecting the Right Partner: Beyond Compliance

While meeting the legal prerequisites is essential, companies often look for more than just basic documentation when choosing an NGO for their CSR partnerships. NGOs, in turn, need to present themselves as suitable and impactful partners. Key factors considered include:

1. Credibility and Transparency:
   • Extensive Documentation: Beyond general media mentions, NGOs must maintain robust supporting documents such as authentic evaluation reports, quantifiable impact data, photographs (where applicable), annual reports, strategic planning documents, and tangible proof of project implementation.
   • Track Record of Partnerships: Information regarding previous collaborations with other corporations, government bodies, or reputable foundations can significantly enhance an NGO’s goodwill and perceived reliability. A strong online presence, including a professional website and active social media, showcasing their work and impact, is also crucial.
2. Alignment of Vision:
   • Shared Social Cause: A fundamental step for both parties is to determine if their social objectives align. A company interested in environmental sustainability will look for an NGO with relevant programs and a proven track record in that area.
   • Clear Proposal: NGOs must ensure their proposals accurately and comprehensively describe their activities and how the company’s support (whether financial grants, in-kind donations, expert advice, or volunteer services) would contribute to achieving shared goals. Conflicting interests should be carefully avoided.
3. Realistic Goals and Budgeting:
   • Measurable Outcomes: Funding organizations expect tangible and measurable results within a reasonable timeframe. NGOs must set realistic goals and clearly articulate how success will be measured. For instance, while changing deep-rooted societal mindsets might take years, an NGO can realistically report on the number of girls educated, women empowered through skill development, or individuals provided with medical aid within a year.
   • Transparent Budget: A detailed and realistic budget that clearly outlines how funds will be utilized is critical. Companies want to ensure their investments are used efficiently and effectively.

Conclusion

For NGOs in India, navigating the landscape of Corporate Social Responsibility funding demands more than just passion for a cause; it requires meticulous adherence to legal frameworks and a strong commitment to transparency and accountability. By ensuring all basic documentation is in place (such as Certificate of Incorporation, 12A, 80G registrations, and the mandatory Form CSR-1), demonstrating a verifiable track record, and presenting compelling, well-aligned proposals with realistic outcomes, NGOs can unlock significant corporate support. This not only helps them secure vital funds but also builds lasting partnerships that drive meaningful and sustainable social impact.

Filingg.com offers expert services to ensure your business thrives. For more details, contact 7791910007 or info@filingg.com today!

FAQs

Q1: Can a newly established NGO receive CSR funding immediately after its formation? A1: Generally, no. As per the Companies (CSR Policy) Rules, 2014, an NGO (unless established directly by the funding company or by the government) must have an “established track record of at least three years” in undertaking similar activities to be eligible for CSR funding. Additionally, obtaining 12A and 80G registrations and filing Form CSR-1 also takes time after establishment.

Q2: What is the purpose of Form CSR-1 registration? A2: Form CSR-1 registration is mandatory for all entities intending to undertake CSR activities funded by corporations. Its primary purpose is to enhance transparency, ensure accountability in CSR spending, and allow the Ministry of Corporate Affairs to effectively monitor the flow of CSR funds in the country.

Q3: What are 12A and 80G registrations, and why are they important for NGOs seeking CSR funds? A3:

• 12A registration (under Section 12A of the Income Tax Act, 1961): Grants income tax exemption to the NGO on its income. Without this, the NGO’s income could be taxed.
• 80G registration (under Section 80G of the Income Tax Act, 1961): Allows donors (including corporations making CSR contributions) to claim tax deductions on the donations they make to the NGO. Both registrations are crucial as they offer financial benefits that make the NGO a more attractive and compliant partner for CSR funding.

Q4: Is it mandatory for a company to have an independent director on its CSR Committee? A4: Section 135(1) of the Companies Act, 2013, states that a CSR Committee must consist of three or more directors, out of which at least one director shall be an independent director. However, a proviso clarifies that if a company is not required to appoint an independent director under other provisions of the Act, then the CSR Committee can be formed with just two directors.

Q5: What happens if an NGO does not comply with the CSR requirements after receiving funds? A5: If an NGO fails to comply with the terms of its agreement with the funding company or with the statutory requirements (e.g., misutilizes funds, fails to provide reports, or loses its registrations), the company may cease further disbursements, and in serious cases, may initiate legal action to recover misused funds. The MCA also monitors compliance through reports filed by companies.