Pre-Qualifications for NGOs to Accept CSR funds

An NGO, as per Indian law, is either a society, trust or a section 8 company investing all its profits into a cause. All non-profits must fulfil certain criteria to receive funding from corporations under their Corporate Social Responsibility Policy. What are these criteria? Is it possible for an NGO to receive CSR funding right after establishment?

Companies obligated to build a CSR Fund

Section 135 of the Companies Act, 2013 clearly states that companies holding net worth of Rupees Five Hundred Crore or more, or having a turnover of Rupees One Thousand Crore or more or a net profit of Rupees Five Crore or more during the immediately preceding financial year must constitute a Corporate Social Responsibility Committee. This Committee must consist of three or more directors, out of which at least one director shall be an independent director.

The Company may support the following entities under their CSR initiative:

1. A company established under Section 8 of the Companies Act, a Registered Public Trust, or a Registered Society, which are registered u/s 12A and 80G of the Income Tax Act, 1961, established by the funding company, either singly or along-with any other company;

2. A company established under Section 8 of the Companies Act, a Registered Trust or a Registered Society established by Central Government or State Government;

3. Any entity established under an Act of Parliament or a State legislature; or

4. A company established under Section 8 of the Companies Act, or a registered public trust or a registered society, registered under Section 12A and 80G of the Income Tax Act, 1961, and having an established track record of at least three years in undertaking similar activities.

Registration of Form CSR-1

Under the notification by Ministry of Corporate Affairs, dated 22 January 2021, the Companies (CSR Policy) Amendment Rules, 2021 was passed. It stated that all entities, be it a society, trust, section 8 company, or any other entity involved in CSR activities, must register their Form CSR-1 with the Ministry of Corporate Affairs to undertake CSR activities funded by corporations. The registration intends effective monitoring of the CSR spending in the country.

The entity must fulfil 2 parts of Form CSR-1. Part 1 shall detail the nature of the entity and Part 2 shall provide certification of engagement from a practising professional such as Chartered Accountant or a Company Secretary, or a Cost Accountant. For Part 1, the NGO will require following documents to complete the registration:

1. Registration Certificate i.e., Certificate of Incorporation in case of Section 8 Company, Society Registration certificate in case of Society, Registration with State Public Trust Act, if any;

2. Certificate u/s 12A issued by the Director of Income Tax (Exemption) and the validity of the same. It may be pertinent to note that currently entities registered u/s 10(23C) are not eligible to get registered in Form CSR-1;

3. Certificate u/s 80G issued by the Commissioner of Income Tax (Exemption) and the validity of the same.

Review of Previous Three Years

Several entities supported through the CSR fund may not be established by company, group companies or under an Act of Parliament. Upon such an event, the Committee members here must verify at least the past 3 years’ activities of the entity by reviewing the following documents:

1. Audited financials of entity for last three financial years;

2. Date of registration u/s 12A and u/s 80G;

3. Form 10B of the entity for last three financial years;

4. Note of nature of activities carried out by the entity in the earlier years;

5. Return of income and computation of income for the past three years;

6. Details of CSR projects already undertaken by the entity;

7. Assessment orders, if any, to verify the activities accepted by the department.

Recognition of the right organisation

While review of the previous three years provides extensive information about the financials and activities of the organisation, it may not be enough to judge whether an NGO is suitable for the funding company. The following are a few details one must note before applying for or funding an entity:

1. Credibility of the entity. Other than media reports, and popular partnerships, it is important to maintain extensive documentation on proof of areas of work. Entities must maintain supporting documents such as authentic evaluation reports, impact data, photographs (if applicable), annual reports, strategy documentation and proof of implementation to ensure their credibility. It is also important to gather information with respect to other partnerships of the organization. An entity’s goodwill turns stronger when it is proven, rather than hearsay.

2. Compare the vision of the funding company and the entity. What social cause is the company interested in? Does the entity’s program activities align with the company’s CSR vision or do they hold any conflicting interests? Entities must ensure their proposals provides an accurate and detailed description of the activities they are involved in and how companies could provide support in the form of grants, donations, advice, service, etc.

3. Realistic goals and budgets. Funding organisations tend to expect evident and impactful results within a few months of years. Therefore, it is the entity’s responsibility to provide the right idea to the company on the goals of the organisation. For example, one cannot measure changes in patriarchal mindsets within a collective group in a year. However, it is possible to set goals and report the number of educated girls, employed and independent women.

Conclusion

While acting for any social cause is a great deed, any company, before funding an entity in the social development sector, must ensure that their paperwork is in place. Without the basic documentation, it is difficult to judge those functioning in a robust manner and ones which collect funds without a vision or strategy in action.