Grant as Work Order – Implications

Dear Friends,

NGO is receiving funds from a PSU for doing development work. This fund is part of the CSR initiatives. The amount is not given as a grant but in the form of a work order/consultancy. What implications will it have on the NGO receiving such funds?

Please provide your inputs on the same.

Thanks and regards,

B V Soma Sastry

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4 Responses to Grant as Work Order – Implications

  1. B V Soma Sastry says:

    Dear Subhashji/Sriraman,

    Thanks a lot for the insights. It is really useful as NGOs, in the name of CSR funds, will fall in this trap and face existential crisis for no fault of their own. May I take this opportunity to request you to initiate a collective process to orient and sensitize the Corporates on the way the legal aspects affect the NGOs, in turn the way Corporates should fund the NGOs.

    Thanks and regards,

    B V Soma Sastry

  2. Subhash Mittal says:

    Dear Soma,

    You have raised a very valid concern. With increasing involvement of corporates in development sector through CSR, these are new developments which the Development Sector would need to tackle. Corporates who are far more attuned to compliance with legal obligations, however do not understand the concept of partnerships, especially at the level of their Accounts & Legal Team. Infact often their payment software do not have scope for any payments without deduction of TDS.

    Immediate implications for the concerned NGOs would be that once contracts are treated as works contract / consultaancy contracts, TDS would be deducted and full amount contracted in such contracts would not be received by the NGO. Thus either they would have to independently find funds for this gap or they would only implement for actual funds rec’d. Larger implication would be that as TDS claims become larger, Income Tax authorities would start treating the activities of NPOs as ‘for profit’ and start questioning validity of S.12A, stating that NPO is involved in ‘For Profit’ activities.

    This issue was alos discussed in SRRF’s CSR Report.

    • Subhash Mittal says:

      Further to my earlier reply. I observe I have not given the solution to the problem. Basically under Income Tax Act, an NPO can apply to the ITO (under Rule 28AA) for applying at lower income tax rate or even nil rate. For this you will need to apply formally to the Dept alongwith several documents, including last 3 years accounts, etc. Once the concerned officer is satisfied that the current and the estimated tax liability of a person justifies tax withholding at a lower rate, or at nil rate, the AO will issue a certificate. This certifcate can be provided to the donors who then would not deduct TDS or deduct at the lower rate in accordance with this certificate provided by the Tax Dept.

      Hope this would give some solution to the problem that you are facing.


  3. PK Sriraman says:

    Hi Soma

    It is unfortunate not all Public Sector implement CSR using the “partnership” approach and release contributions under CSR as “grant”. I also understand some Public Sector expects “EMD” and “Performance Security” to be submitted along with CSR proposals. Perhaps they apply their usual “procurement” route to award CSR work.

    If the contract is awarded as a “consultancy” or “work order” and TDS is deducted from such contract and the NGOs would also need to treat them as “other income”. This would imply, depending on the quantum of the contract, service tax may also apply on the contract value.

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