From the Knowledge Centre
Trust, Society or Section 8 Company? Setting Up an NGO and Keeping Its Tax Exemption
Founders of charitable organisations usually focus on their cause, which is how it should be. The legal structure and the tax registration still decide whether the organisation can receive grants, CSR money and donations efficiently. Here is a practical overview.
Three structures compared
| Point | Public charitable trust | Society | Section 8 company |
|---|---|---|---|
| Formed by | Trust deed registered with the Sub-Registrar | Memorandum and bye-laws registered with the Registrar of Societies | Incorporation with MCA under a Central Government licence |
| Minimum persons | 2 trustees (practice) | 7 members (Societies Registration Act, 1860) | 2 members, 2 directors |
| Governance | Trustees, often for life | Elected governing body | Board of directors under the Companies Act |
| Regulator | Charity Commissioner (in some states) / Registrar | Registrar of Societies | Registrar of Companies |
| Perception among CSR donors | Acceptable | Acceptable | Often preferred |
A trust suits a founder-led organisation that wants stable control. A society suits membership-based bodies such as associations and clubs. A Section 8 company has more compliance, but its corporate governance is familiar to corporate donors.
Income tax registration
A charitable organisation is not exempt from income tax merely because it is a trust or a society. It must register with the Income Tax Department. Under the 1961 Act, this registration was under Sections 12A/12AB for exemption and Section 80G for donors' deduction. The equivalent provisions are carried into the Income-tax Act, 2025.
- Provisional registration is granted to a new organisation for three years. It should be obtained before the organisation starts significant activity.
- Regular registration must be applied for at least six months before the provisional registration expires, or within six months of starting activities, whichever is earlier. It is granted for five years. Following the 2025 amendment, organisations with total income up to ₹5 crore in each of the two preceding years can get regular registration for ten years.
- Donor deduction registration follows the same provisional-then-regular cycle.
What keeps the exemption alive
- Application of income: at least 85% of income must be applied to the objects during the year. Any shortfall can be accumulated only for specified purposes, with prescribed filings.
- Audit and return: the accounts must be audited, and the audit report filed before the return. The return of income must be filed by the due date.
- No benefit to related persons: income or property must not be used for the benefit of founders, trustees or their relatives.
- Corpus donations and anonymous donations follow special rules. Track them separately.
- Donor statements: an organisation registered for donor deduction must file an annual statement of donations received and issue certificates to donors. Without these, donors cannot claim the deduction.
- Business activity: trade, commerce or business is restricted, and receipts from such activity must stay within the limits in the law.
Other registrations to plan for
- NGO Darpan (NITI Aayog) – a unique ID required for many government grants.
- CSR-1 – required to receive CSR funds from companies. It needs income tax registration first.
- FCRA – an organisation needs prior registration or permission to receive any foreign contribution. FCRA funds must come into the designated account at SBI's New Delhi Main Branch.
Losing an exemption usually comes from missed filings or poor record-keeping, not from the charitable work itself. Set up the compliance calendar from day one.
The information in this article reflects the law as on the date of publication and is for general guidance only.