Taking a cue from Mr Mathew Cherian’s Vijay Sardana Memorial Lecture, we start a series of short discussion points on Resource Mobilisation for Non-Profits. We start with one of the most popular resource, GRANTS.
I don’t need to discuss much about grants, all of us know Grants are basically tied funds, which can be used to fulfil a non-profit’s objectives.
On the Pro side, grants help a Non-Profit get much-needed funds, which can help it meet salary & admin costs, and hence are always welcome. They help you gain experience of implementing projects. It gives NGOs exposure on how to deal with large development organisations. Also lets not forget Grants attract grants. Thus getting grants could be a multiplier effect on resources.
On the flip side, grants create uncertainty. In case a big grant goes missing from an NGO’s portfolio, unless replaced with another, it creates gaping hole in the NGO’s income. The organisation would immediately need to cut down. If too much micro-management by grantor, it can reduce a NGO’s own originality in execution of the projects. Methodology for implementation, although in theory is to be mutually decided between grantor and grantee, but more often, grantee basically ends up doing what the grantor wants to be done with its money. There would be exceptions, but generally this is the situation. Grants can make a non-profit complacent, as it is tied up in servicing those grants and has little time to explore or develop other resource avenues.
On available sources of grant funds, there are still a few funding agencies in India which give grants. There are several websites which provide such information. Lists available on these websites, would never be upto date and NGOs would need to ascertain the current status.
Let’s also acknowledge perception of difficulties in FCRA has reduced interest of foreign funding agencies in India, however these funds are still available, and networking with right organizations and a lookout for such organizations still can help.
CSR Grants have certainly become far more prevalent today, and contacting CSR Depts of large companies could help. Also keep a lookout for big companies active in your area and contacting them should be on all NGOs agenda. There could be ticklish issue with CSR Grants, where corporates may deduct TDS on the grants. This could be due to misconceptions in the corporates understanding of taxability issues of NGOs or even inflexibility of their payment systems, which only recognize contract agreements which are subjected to TDS. In case you cannot convince corporate not to deduct TDS, at least get a lower Tax deduction certificate under S.197. This would help you minimize cash flow issues. In case corporate asks you to raise invoice with added GST, this is strongly advised to avoid, it could create future taxability issues for the NGO.
Govt grants are other major areas of avenues, which NGOs should consider. These do come with negative perceptions, but they do contribute to the society. All good work done by NGOs in such schemes goes towards betterment of society.
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Socio Research & Reform Foundation (NGO)
512 A, Deepshikha, 8 Rajendra Place,
New
Delhi – 110008
In our view Grants per se cannot be classified as supply under GST, since both ‘consideration’ and ‘furtherance of business’ is missing in such activities.
It also is being argued that contributing funds to NGOs helps corporate fulfill their legal obligations under S.135 of Companies Act 2013. That may be so, but the ownership of the social program remains that of the Non Profit organisation. Also several times corporate require that their brands / names / logos, etc. are exhibited in all the materials being published with its money, or even exhibit their companies’ names wherever the programmes are being undertaken. Such requirements of branding do complicate the issues, however it may be noted that this should still not alter the applicability of GST on such grant contacts, since the condition of ‘furtherance of business’ is still missing in the whole activity.
However as a precaution following should be considered:
NGOs must not raise invoice for receipt of grant, these should be based on Partnership Agreement or MoU. You may have to sign a Purchase Order, but payment terms should be as per attached agreement or MoU.
Agreement budget must never use term like ‘mark-up’. These could attract GST and could even have repercussions under Income Tax. Rather than using the terms like branding, etc. suggest use terms like ‘due credit’ would be given for this support. In any case amount being spent on such ‘due credit’ should be nominal only.
Very valid points raised by the author. Particularly where taxation is concerned, there is total lack understanding. Corporates are deducting TDS as advised by their CAs and some are insisting on GST too, which goes against the constitution of a society or a trust working for people’s welfare and serving the poor.