Socio Research & Reform Foundation

Criteria for recognition an entity as Social Enterprise

A NPO or FPE can be classified as a Social Enterprise. To be classified as one, following criteria has to be fulfilled.

• Primacy of Social Intent needs to be established through engaging in certain social causes. These could be any of the activities covered under SDGs or even protection of national heritage, art and culture, promotion of rural/nationally recognised/para-Olympic/Olympic Sports, supporting non-profit ecosystems, and several other socio related activities. 
• Entity should be focussed on serving under-served or less privileged population or backward regions, with minimum 2/3^rd of its average revenues of last 3 years coming from serving such populations or 2/3^rd of average expenditures of last 3 years focussed on target population.
• Corporate Foundations, political religious organisations, professional or trade associations, infrastructure or housing companies (exception low-housing activities) will not be eligible to be recognised as social enterprise.

Registration of NPO / Social Enterprise at SSE

Registration Requirements

A NPO can register itself on SSE as per S.292(F) of ICDR Regulations. To do the same it needs to fulfil following requirements.

• A NPO must have been registered for at least 3 years. Its registration as NPO (Society, Trust, S.8, etc.) must be valid for next 12 months at the time of seeking registration with SSE. PAN should confirm the legal status of the NPO.
• If entity owned by Govt, indicate the same, or state if it is a private entity.
• 12A/12AA/12AB registration, valid for at least 12 months.
• Should have a valid 80G registration to be able to give IT deduction to investors.
• NPO should have a minimum spending of around Rs 50 lakh during last FY and receipts at least around Rs 10 lakh.
• NPO should have at least 2/3^rd of its spending on social projects, to be classified as a social enterprise.

Benefits of registration on SSE as a Social Enterprise

• Improved market access:  By registering on SSE as a Social Enterprise, a NPO gets access to a common and structured meeting ground between Social Enterprises and investors/donors with inbuilt regulation for providing sanctity and accountability of finances.
• Synergy between investors and investee in social aims:In view of flexibility of investments and capital that would be available on an SSE, the canvas of choice would be much wider allowing investors and investees with similar missions and visions to connect seamlessly
• Performance based philanthropy: Performance of the enterprises listed on an SSE would be monitored thus it will instil a culture of performance driven philanthropy.
• Minimal registration cost: SSE saves cost for both issuer and investor/donor by charging minimal fees for registration and listing.
• Additional avenue for Social Enterprises: Central and State governments till date have the biggest onus of achieving sustainable development goals. SSE will provide an alternate avenue for raising funds thereby encouraging new and existing social enterprises.

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Socio Research & Reform Foundation (NGO)                       
512 A, Deepshikha, 8 Rajendra Place,
New Delhi – 110008

(Some of you may be aware of Social Stock Exchange (SSE) being introduced in India. Through this Series, we will cover major issues relating to SSE. In the first post, we give International Background of SSE and its Legal Framework in India.)

Finance Minister in her Budget speech in 2019 introduced the concept of Social Stock Exchange (SSE) in India, as a separate platform to enable non-profit sector to raise funds for itself.

International Scenario
Brazil was the first country to launch an SSE in the year 2003, followed by South Africa in 2006, Portugal – 2009, Canada, Singapore & UK – 2013 and Jamaica – 2019. However only SSE’s based in Canada, Singapore & Jamaica are active, indicating difficulties in sustaining SSEs.

Most of the international platforms have limited transactions, with limited opportunities, and mainly focussed on FPEs, rather than NPOs[1]. In contrast Indian SSE is working towards trading for equities issued by FPE and provides opportunities for NPOs to open up avenues for direct listing. It is also developing set of procedures to enable investors to identify those entities which have measurable social impact.

Legal Framework
We all are aware that SEBI provides an overarching regulatory mechanism for regulating securities market and protecting investors. SEBI was established through SEBI Act 0f 1992. In 2022, SEBI amended its various regulations to introduce overall a framework for Social Stock Exchange[2].

Under the proposed framework, SEBI offers following services under SSE:

1. Recognition of a NPO as well as a For Profit Entity (FPE) to be recognised as a Social Enterprise
2. Allows listing of a NPO without raising of funds
3. Allows raising of funds by a NPO

(to be continued)

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Socio Research & Reform Foundation (NGO)                       
512 A, Deepshikha, 8 Rajendra Place,
New Delhi – 110008

Dear Sir/Madam,

Can Indian Registered NGOs having FCRA registration, establish its offices outside India for Resource Mobilisation.

Murali G

Declaration needs to be signed digitally (by pasting digital signature) by Chief Functionary.

Seal of the Organisation also needs to be uploaded.

Following documents further required to be uploaded
i.    Chartered Accountant Certificate (Max 1 MB)
ii.   Bank Statements of all the accounts duly certified by a Bank Officer (Max 10MB)
iii. Audited FCRA Financial Statements (incl. Bal Sheet, I&E & R&P) (Max 50MB)
iv. Separate signed declaration by Chief Functionary (Max 1 MB)

For instructions on uploading of these documents, signatures, etc. pl go to instructions on FCRA website.

https://fcraonline.nic.in/Home/PDF_Doc/FCRA-Scanning-Instructions.pdf

To give more clarity to Civil society sector, regarding taxability of unspent grant, a recent decision by Courts has held that unspent grant cannot be treated as income. In a recent decision in JM Financial Foundation vs CIT[1]Mumbai Income Tax Tribunal has relied on the case of DIT vs Society for Development Alternatives.

CIT (Exemptions) added unspent grants of JM Financial Foundation received during the year as Income. Tribunal after considering the arguments of CIT (E) and assessee, decided that the income of the Trust was to be spent on Ashoka University as per the directions of the donor and hence cannot be stated to be income of the year. It relied on the case of DIT vs Society for Development Alternatives where it was held that the respondent assessee had received grants for specific purposes / projects from the government, NGOs, foreign institutions, etc. These grants were to be spent as per the terms and conditions of the project grant. The amount which remained unspent at the year-end, got spilled over to the next year and was treated as unspent grant.

The Tribunal noted that the grants are not free grants, but the donor require several reporting from the Trust for utilisiung the grant. These grants are can be further subjected to audit by the donor and if remains unspent at the end of the project has to be refunded back.

Thus, these are not free grants which the assessee could use according to its free will, but depends upon the donor requirements. case was on not utilised, remained unutilised and could not be treated as income of the Trust. Thus the matter was decided in the favour of assessee. Relying on the above principles mentioned in Development Alternative case, the Tribunal decided the matter in favour of the assessee.

[1]https://itatonline.org/digest/verdicts/jm-financial-ltd-v-dy-cit-itat-mumbai/

I have a question, our organization Center for Communication and Change India is registered as Trust (NGO) and we do not have FCRA so far. Is it mandatory for non-FCRA NGOs also to registered on the DARPAN portal of NITI Aayog and get a valid unique ID with updated details to receive funds from CSR or local UN organizations?

I would appreciate your valuable advice.

Regards,

Rajinder Mehra

Dear Sir,

We have received a notice from FCRA department asking to file Annual Returns for some previous years.
However, we have been regular in filing the returns within due date and all these returns are also appearing on the FCRA Portal, still this notice is stating that this is the last chance to submit it.
What does it meant for?

May I request you to throw some light on it?

Regards
Prabhat Kumar

Dear Sir,
Greetings!

We are in the process of filing FCRA Annual Return and facing a challenge
to update the forms related to list of Movable and Immovable Assets.

In the pop up window ( screenshot given below ), we have only 4 fields to enter – opening balance, assets bought during the year, assets disposed during the year and closing balance. We do not have any field to update for the depreciation value in the portal. Kindly advise where to mention the depreciation value so that the closing balance get matched with the current value of the assets ( As on 31st March 2023)

Rgds

Vimala D

Dear Sir,

We are in a dilemma in interpretation of two terms under the amended FCRR 2011. A hypothetical case is presented here:

1. A person XYZ is an employee of organisation ABC which is registered Trust/Society. S/he is invited by a Foreign organisation PQR which declares itself as ‘…a scientific, Political, and cultural organisation founded in xxx. It is an international network of scholars, health workers, and activists…”

2. Her/his travel, accomodation and other expenses are being met with by another foreign organization EFG. This organisation EFG declares itself as ‘ … one of the six major political foundations in the YYY tasked primarily with conducting political education both at home and abroad.”

3 The organization ABC has FCRA renewal application under process.

4. The organization ABC received substantial grant from State Govt. during past 10 years.

My dilemma is reflected in the following questions:

a) whether XYZ is a public servant as per FCRR 2011/FCRA 2010

b) whether XYZ comes under a ‘foreign hospitality’ as her travel, accommodation etc was paid by a political organisation for a conference organised by a political organisation

c) if it is what procedure should be followed, an NOC is essential from the Chief Functionary

d) if violated, what corrective measures need to be taken, is declaring in FC2 is adequate 

e) what is the interpretation as the organizer and the host which are foreign sources have political education in their objectives

Dhruv
Secretary
VACHAN

CBDT has clarified that while filling Form 10B & 10BB, details are required to be given of those persons who have contributed substantially. Present language in the Form defines ‘persons who have made a substantial contribution’ as any person whose total contribution upto the end of the relevant previous year exceeds fifty thousand rupees (as referred to under S.13(3)(b) of the Income Tax Act. Considering the language in the Act is such which would mean providing details of all persons who have contributed Rs 50,000 or more from inception of the NPO. Compiling this information, would not be an easy task, hence many NPOs and their advisors approached CBDT, stating difficulties that they are facing in compiling this information.

CBDT after due examination and consideration, has clarified that for the purpose of Form 10B & Form 10BB, persons who have contributed substantially during the Financial Year only needs to be disclosed.

Further CBDT has clarified that as far as ‘relative’ for such persons is concerned it may be provided to the extent information is available. Similarly details of concerns in whom such person referred to have substantial interest may be provided to the extent available.

This provides some relief both to the NPOs and their auditors. However bigger question is this definition has been there on the statute for long, why not change the definition in the statute, if it is found difficult to comply. (click here for circular)

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Socio Research & Reform Foundation (NGO)                       
512 A, Deepshikha, 8 Rajendra Place,
New Delhi – 110008