Financial

Management

Tool Kit

1
 Content
Formation of a NPO and Alternative Forms of Organisation
 Indian Trusts Act
 Society Registration Act
 Companies Act
 Indian Registration Act
 Income Tax Act
 Foreign Contribution Regulation Act (FCRA)

Basic Financial, Accounting and Regulatory Requirements

 Type of Accounting System and Recording of Financial Transactions
 Financial Management for Not for Profit Organisation
 Relevant legal provisions
 Chart of accounts

Meetings and minutes writing

 Meeting
 Writing the minutes

Rules regarding investment of funds

 Budgets
 Petty Cash
 Trial Balances
 Internal Controls
 Double Entry Book Keeping
 Financial Statements
 Financial Analysis
Dealing with Regulators
 Power of Regulator
 Business communication and presentation tips

Dissolving an NPO
 Dissolution of a Society
 Settlement of Disputes
 Consent of the Government
 Dissolution of the Societies by the Registrar
 Dissolution by Court
 Dissolution for Constituting Public Nuisance
 Dissolution by Government
 Consequences of Dissolution
 Members Not To Receive Profit

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About Tool Kit
Formation of a Non-profit Organisation (NPOs)
A nonprofit organization is an organisation whose primary objective is to support an issue or
matter of private interest or public concern for non-commercial purposes. Nonprofits may be
involved in an innumerable range of areas relating to the arts, charities, education, politics,
religion, research, sports or some other endeavor
Go to Chapter – 01

Basic Financial, Accounting and Regulatory Requirement

This chapter discuss about basic knowledge of accounting theory and practice, including
fundamental accounting concepts, double-entry bookkeeping, and financial statement analysis.
Go to Chapter – 02

Meeting and Minutes Writing

Minutes are written as an accurate record of a group's meetings, and a record decisions taken.
They are useful because people can forget what was decided at a meeting if there is no written
record of the proceedings. Minutes can also inform people who were not at the meeting about
what took place
Go to Chapter – 03

Rules regarding investment of funds

A managed fund pools the money of investors and is invested according to set investment
objectives. Types of managed funds range from a simple cash management trust paying interest
on a regular basis
Go to chapter – 04
Dealing with Regulator
In dealing with regulators, there should be a central point of communication in every company. It
is difficult to maintain the personal communication between the supervised and the supervisors if
the regulators are forced to deal with a different person in the company with every
communication.
Go to Chapter - 05
Dissolving an NPO
The Registrar of Society has power to dissolve the society in case he feels that the society is not
functioning properly, is mismanaged or has contravened the provision of acts.
Go to Chapter – 06

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Formation of a Non
Profit Organisation
and Alternative Forms
of Organisaton

Chapter – 01

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1. Indian Trusts Act

Trust and trustees is a concurrent subject [Entry 10 of List III of Seventh Schedule to
Constitution]. - - Thus, the Act will apply all over India except when specifically amended /
altered by any State Government.
The Indian Trusts Act was passed in 1882 to define law relating to private trusts and trustees. - -
A trust is not a 'legal person'. Property of trust is held in name of trustee for benefit of
beneficiary.

What is a trust?
A trust is an obligation annexed to the ownership of property and arising out of a confidence
reposed in and accepted by the owner, or declared and accepted by him, for the benefit of
another, or of another and the owner. The person who reposes the confidence is called 'author of
trust' (testator), the person who accepts the confidence is called 'trustee' and the person for whose
benefit the confidence is accepted is 'beneficiary'. The subject matter of trust is called 'trust
property' or ‘trust-money. The ‘beneficial interest’ or ‘interest of the beneficiary’ is his right
against the trustee as the owner of trust-property. The instrument by which trust is declared is
called as ‘instrument of trust’.
Thus, when a property is held by one person as trustee for the benefit of another, it can be
regarded as a trust. Trusts are governed by Indian Trust Act, as may be modified by State
Governments.
A trust can be created for any lawful purpose. A trust can be created by deed, will or even word
of mouth. However, trust of immovable property can be created only by non-testamentary
instrument signed by author of trust and is registered, or by will of author. Thus, ‘will’ is not
required to be registered, even if it pertains to immovable property.

Duties of trustees
Trustee is not bound to accept the trust. However, once accepted, he cannot renounce it except
permission of civil court or beneficiary (if he is major) or by virtue of special power in the
instrument of trust. - Once trustee accepts trust, he is bound to fulfil the purpose of trust and to
obey directions given at the time of creation of the trust. It can be modified with consent of
beneficiary. His duties are
 Inform himself of state of trust property
 Protect title to trust property
 Not to set up title adverse to beneficiary
 Take care of property as a man of ordinary prudence would deal with such property as
own property Conversion of perishable property to permanent and immediately profitable
character
 To be impartial
 To prevent waste
 Keep proper accounts and information
 Invest trust-money in prescribed securities and not others

Trustee is liable for breach of trust. [section 23]. ‘Breach of trust’ means a breach of duty
imposed on a trustee, as such, by any law for the time being in force. [section 3 para 3].

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 Rights and powers of trustee
Trustee has following powers
 Rights to title deed
 Right to reimbursement of expenses
 Right to indemnify from gainer by breach of trust
 Right to apply to court for opinion on management of trust property
 Right to settlement of accounts
 All acts necessary and reasonable and proper for trust property or protection of
beneficiary
 Power to covey property when he is authorised to sell
 Power to vary investments (from one security to another
 Power to apply property of minors for their maintenance
 Power to give receipts
 Power to compound or compromise

Rights and liabilities of beneficiary

The beneficiary has * rights to rent and profits (section 55) * Right to specific execution of
intention of author of trust (section 56) * Right to inspect and take copies of instrument of trust,
accounts etc. (section 57) * Right to transfer beneficial interest (section 58) * Right to sue for
execution of trust (section 59) * Right to proper trustees (section 60) * Right to compel trustee to
perform an act of duty * Follow trust property into hands of third persson and into which it has
been converted (section 63). - - A beneficiary is liable if he joins in breach of trust. [section 68].

Revocation of trust
A trust created by will can be revoked at the pleasure of testator. A trust created otherwise by
will can be revoked (a) by consent of all beneficiaries if they are competent to contract (b) In
exercise of power of revocation expressly reserved by author of trust, if the trust has been
declared by a non-testatory instrument or by word of mouth or (c) At pleasure of author of trust,
if the trust is for payment of debts and the author of trust has not communicated to the creditors.
[section 78].

2. Society Registration Act

Purpose of the Act is to provide for registration of literary, scientific and charitable societies.

Societies Registration Act is a Central Act. However, ‘unincorporated literary, scientific,

religious and other societies and associations’ is a State Subject (Entry 32 of List II of Seventh
Schedule to Constitution, i.e. State List). Thus, normally, there should have been only State Laws
on this subject. However, Societies Registration Act was passed in 1860, i.e. much before
bifurcation of power between State and Centre was specified. Though the Act is still in force, it
has been specifically repealed in many States and those States have their own Acts. Thus,
practically, the Central Act is mainly of academic interest.

Societies to which the act applies

Following societies can be registered under the Act –
 Charitable societies

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 Military orphan funds or societies
 Societies established for promotion of science, literature, or for fine arts
 Societies established for instruction and diffusion of useful knowledge, diffusion of
political education
 Societies established for maintenance of libraries or reading rooms for general public
 Societies established for Public museums and galleries for paintings or other works of art,
collections of natural history, mechanical and philosophical inventions, instruments or designs

Registration
Any seven or more persons associated for literary, scientific or charitable purpose can register a
trust by subscribing their names to memorandum of association. [Section 1]. [The Act envisages
filing the memorandum with Registrar of Joint Stock Companies. Practically, the memorandum
will have to be filed with Registrar appointed under corresponding State Act]. - - The
memorandum of association shall contain name and objects of society and names and addresses
of governors/council/ directors or other governing body. - - Copy of rules and regulations of
society will also have to be filed along with memorandum. [section 2].

Annual list of managing body to be filed

Annual list of managing body should be filed within 14 days after AGM. [section4]. If there is
no provision of AGM, then list should be filed in January every year. [section 4]. - - The
governing body may be termed as governors, council, directors, committee, trustees or other
body to whom by rules and regulations of society, the management of the affairs of society is
entrusted. [section 16].

Society is not a body corporate

Society is not a body corporate. This is evident from following – (a) Entry 32 in List II of
Schedule to Constitution itself uses the words ‘unincorporated’ (b) As per section 4, property of
society vests in governing body, if not vested in trustees. Thus, property does not vest in society
as such. (c) Section 6 states that suit by or against society can be only in name of President,
Chairman, Principal Secretary or Trustees, as determined by rules of society. Thus, suit cannot
be in name of society as such.

Office bearers not personally liable

Section 8 makes it clear that though suit against society is instituted in name of some person, he
is not personally liable, but property of society will be liable.

Members of society
A member is a person who is admitted according to rules and regulations of society and who
pays subscription, or signed the roll or list of members, and who has not resigned from
membership. [section 15]. A member can be sued as stranger for arrear in subscription or if he
injures or destroys property of society. [section 10]. Member guilty of offence of stealing,
embezzlement or wilful destruction of society property can be punished as stranger, i.e. not a
member. [section 11].

Alteration, extension of purposes, amlagamation or dissolution

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 Society can alter, extend or abridge is purposes, or amalgamate with other society after approval
of general meeting of members. [section 12]. Society can be dissolved if three-fifths of members
determine to do so. [section 13]. Upon dissolution, balance amount should be given to other
society and not to any member. [section 14]

3. Companies Act

Definitions of "company", "existing company", "private company" and "public company"

(1) In this Act, unless the context otherwise requires, the expressions "company", "existing
company", "private "company" and "public company" shall, subject to the provisions of
subsection
(2), have the meanings specified below:
(i) "company" means a company formed and registered under this Act or an existing company as
defined in clause

(ii) "existing company" means a company formed and registered under any of the previous
companies laws specified below:
(a) any Act or Acts relating to companies in force before the Indian Companies Act, 1866 (10 of
1866) and repealed by the Act;
(b) the Indian Companies Act, 1866 (10 of 1866);
(c) the Indian Companies Act, 1882 (6 of 1882);
(d) the Indian Companies Act, 1913 (7 of 1933);
(e) the Registration of Transferred Companies Ordinance 1942 (54 of 1942); and
[(f) any law corresponding to any of the Acts or the Ordinance aforesaid and in force-
(1) in the merged territories or in a Part B State (other than the State of Jammu and Kashmir), or
any part thereof, before the extension thereto of the Indian Companies Act, 1913 (7 of 1913); or
(2) in the State of Jammu and Kashmir, or any part thereof, before the commencement of the
Jammu and Kashmir (Extension of Laws) Act, 1956 (62 of 1956), [in so far as banking,
insurance and financial corporations are concerned, and before the commencement of the Central
Laws (Extension to Jammu and Kashmir) Act, 1968 (25 of 1968) insofar as other corporations
are concerned];] and
[(g) the Portugese Commercial Code [***], in so far as it relates to "sociedades anonimas";]
(iii) "private company" [means a company which has a minimum paid-up capital of one lakh
rupees or such higher paid-up capital as may be prescribed, and by its articles,-]
(a) restricts the right to transfer its shares, if any;
(b) limits the number of its members to fifty not including-
(i) persons who are in the employment of the company, and
(ii) persons who, having been formerly in the employment of the company, were members of the
company while in that employment and have continued to be members after the employment
ceased; and
(c) prohibits any invitation to the public to subscribe for any shares in, or debentures of, the
company;
[(d) prohibits any invitation or acceptance of deposits from persons other than its members,
directors or their relatives:]
Provided that where two or more persons hold one or more shares in a company jointly, they

8
shall, for the purposes of this definition, be treated as a single member;
[(iv) "public company" means a company which-
(a) is not a private company;
(b) has a minimum paid-up capital of five lakh rupees or such higher paid-up capital, as may be
prescribed;
(c) is a private company which is a subsidiary of a company which is not a private company.]
(2) Unless the context otherwise requires, the following companies shall not be included within
the scope of any of the expressions defined in clauses (i) to (iv) of sub-section (1), and such
companies shall be deemed, for the purposes of this Act, to have been formed and registered
outside India:-
(a) a company the registered office whereof is in Burma, Aden or Pakistan and which
immediately before the separation of that country from India was a company as defined in clause
(i) of sub-section (1);
[(3) Every private company, existing on the commencement of the Companies (Amendment)
Act, 2000, with a paid-up capital of less than one lakh rupees, shall, within a period of two years
from such commencement, enhance its paid-up capital to one lakh rupees.
(4) Every public company, existing on the commencement of the Companies (Amendment) Act,
2000, with a paid-up capital of less than five lakh rupees, shall within a period of two years from
such commencement, enhance its paid-up capital to five lakh rupees.
(5) Where a private company or a public company fails to enhance its paid-up capital in the
manner specified in sub-section (3) or sub-section (4), such company shall be deemed to be a
defunct company within the meaning of section 560 and its name shall be struck off from the
register by the Registrar.
(6) A company registered under section 25 before or after the commencement of Companies
(Amendment) Act, 2000 shall not be required to have minimum paid-up capital specified in this
section

Meaning of "holding company" and "subsidiary"

(1) For the purposes of this Act, a company shall, subject to the provisions of subsection (3), be
deemed to be a subsidiary of another if, but only if,-
(a) that other controls the composition of its Board of directors; or

(b) that other-

(i) where the first-mentioned company is an existing company in respect of which the holders of
preference shares issued before the commencement of this Act have the same voting rights in all
respects as the holders of equity shares, exercises or controls more than half of the total voting
power of such company;

(ii) where the first-mentioned company is any other company, holds more than half in nominal
value of its equity share capital; or]
(c) the first-mentioned company is a subsidiary of any company which is that other's subsidiary

Objectives and Policies of the Companies Act, 1956

Companies play very vital role in any economy. In our country, the Companies Act, 1956
primarily regulates the formation, financing, functioning and winding up of Companies. The Act

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 prescribes regulatory mechanism regarding all relevant aspects including organisational,
financial and managerial aspects of Companies. The winding up matters, presently are largely within
the domain of the jurisdiction of High Courts. Regulation of the financial and management aspects
constitutes the main focus of the Act. In the functioning of the corporate sector, although freedom of
Companies is important, protection of the investors and shareholders, on whose funds they
flourish, is equally important. The Companies Act plays the balancing role between these two
competing factors, namely, management autonomy and investor protection. The main objects of
the Acts are as under:

1. To protect the interests of large number of shareholders, as there exists separation of

ownership from management in a company.
2. To safeguard the interests of creditors.
3. To help the development of companies in India on healthy lines, because corporate sector
constitutes a very important segment of the economy.
4. To help the attainment of the ultimate ends of the social and economic policy of the
Government.
5. To equip the Government with adequate powers to intervene in the affairs of a company
in the public interest and as per the procedure prescribed by law so that the interest of all the
stake-holders may be protected from unscrupulous management.
These objectives are achieved through the measures as explained in the following paragraphs.

Regulation of Companies

1. The Companies Act, 1956 empowers the Central Government to inspect the books of
accounts of a company, to direct special audit, to order investigation into the affairs of a
company and to launch prosecution for violation of the Companies Act, 1956. Books of accounts
and other documents of the Companies are inspected by the officers of the Directorate of
Inspection and Investigation and the Registrars of Companies. These inspections are designed to
find out whether the Companies conduct their affairs in accordance with the provisions of the
Companies Act, 1956 to see whether any unfair practices prejudicial to the public interest are
being resorted to by any company or a group of Companies and to examine whether there is any
mismanagement which may adversely affect any interest of the shareholders, creditors,
employees and others. Wherever inspection reports disclose any information that may be of
interest to other Departments or agencies like the Ministry of Commerce and Industry, Central
Board of Direct Taxes, Enforcement Directorate, State Government or Provident Fund
Authorities, such information is passed on to them. If an inspection discloses a prima facie case
of fraud or cheating, action is initiated under provisions of the Companies Act, 1956 or the same
is referred to the Central Bureau of Investigation.

2. Sections 235 and 237 of the Companies Act empower the Central Government to order
investigation into the affairs of a company under circumstances specified therein. The power to
appoint inspectors, to conduct investigation and to act on report of investigation remains with the
Central Government. The Company Law Board is also empowered to consider application of
members for conducting investigation into the affairs of a company. The powers to order
investigation arise in circumstances where the business of a company is being conducted with
intent to defraud its creditors, or for unlawful purposes, or in a manner oppressive to any of its
members or that if the company was formed for any fraudulent or unlawful purposes. The

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 Companies are prosecuted for committing default in filing their documents or for contravening
the provisions of the Act. The Companies (Amendment) Act. 1988, introduced a new Section
621A empowering the Company Law Board and the Regional Directors to compound offences
of prosecution. The power to compound is not exercisable in relation to offences, which are
punishable either with imprisonment only or with imprisonment and fine.

3. To ensure better management of Companies, the Central Government accord approval for
the appointment and re-appointment of persons as Managing Directors, whole-time Directors or
Managers of a public limited or private limited company which is a subsidiary of a public limited
company, under Section 269 read with Section 388 of the Companies Act,1956.

Protection of Interests of Workers

Sections 529 and 530 of the Companies Act provide that the dues of workers would rank pari passu
with those of secured creditors in the event of closure of a company. This is intended to protect the
interest of the workers of a sick company, who, in the event of closure of the company, have in the
past generally lost their dues in the absence of funds after payment to the secured creditors.

Company Law Board

As per the powers vested in it under Section 10E of the Companies Act, 1956, the Central
Government has constituted an independent Company Law Board with quasi- judicial powers with
effect from 31.5.1991. The Company Law Board has framed Company Law Board Regulations.
The Central Government has also prescribed the fees for making applications/petitions before the
Company Law Board under the Company Law Board (Fees on applications and Petitions) Rules
1991.

4. Indian Registration Act

What is Registration?
Registration means recording of the contents of a document with a Registering Officer and
preservation of copies of the original document.

Why documents are registered?

The documents are registered for the purpose of conservation of evidence, assurance of title,
publicity of documents and prevention of fraud. Also, registration helps an intending purchaser
to know if the title deeds of a particular property have been deposited with any person or a
financial institution for the purpose of obtaining an advance against the security of that property.
Which documents require to be compulsorily registered?
Section 17 of the Registration Act, 1908 lays down different categories of documents for which
registration is compulsory. The documents relating to the following transactions of immovable
properties are required to be compulsorily registered;
a) Instruments of gift of immovable property
b) Lease of immovable property from year to year or for any term exceeding one year or
reserving a yearly rent.
c) Instruments which create or extinguish any right or title to or in an immovable property of a
value of more than one hundred rupees.

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Under section 2(6) of the Registration Act, 1908 the term “ Immovable property” includes:
“Land, buildings, hereditary allowances, rights to ways, lights, fisheries or any other benefit to
arise out of land, and things attached to the earth, or permanently fastened to any thing which is
attached to the earth, but not standing timber, growing crops nor grass.”

Whose document has to be registered?

Section 28 of the Registration Act, 1908 states that all documents of which registration is
compulsory if it relates to an immovable property as well as a few documents of which
registration is optional should normally be presented for registration in the office of Sub-
Registrar within whose sub-district the whole or some portion of the property to which the
document relates is situated.

Is it possible to register a document at a person’s private residence?

Under Sections 31 of the Act, a provision has been made authorising the Registering Officer, on
special cause being shown (for instance if the person is physically handicapped ) to attend at the
residence of any person desiring to present a document for registration and accept for registration
such a document or a “Will”, provided Registering Officer is satisfied about the special cause
shown is sufficient.

What procedure is followed at the time of lodging a document for registration?

For registration of any instrument, the original document which should be typed/printed on one
side only along with two photocopies of the original have to be submitted to the Registering
Officer. The copies are required to be photocopied only on one side of the paper and there has to
be a butter paper between the two photocopies papers. This is done so as to prevent the typed
matter from getting spoilt.
The registration procedure also requires the presence of two witnesses and the payment of the
appropriate registration fees. On completion of the procedure, a receipt bearing a distinct serial
number is issued. The following requirements are completing the registration are usually stated
on the receipt:
a) Market Value of the property;
b) Income-Tax clearance, i.e. NOC. under Section 269 YL (3) issued by the Appropriate
Authority constituted under Chapter XX-C of the Income Tax Act, 1961 if the same is
applicable;
c) Certificate under section 230-A of the Income Tax Act, 1961 granted to the Transferor by the
assessing officer of the Transferor
d) Urban Land Ceiling declarations of the transferor/s and the transferee/s.

What are the fees for registration of a document?

The State Government has been empowered to fix the fees for registration of the document. The
registration fees at present fixed for registering documents relating to property transactions are
approximately 1 % of the consideration of the document but subject to a maximum limit of Rs.
20,000/-
The registration fee for the following immovable property transactions is leviable on the market
value of property on which stamp duty is charged.
The transactions are as under :
(i) Conveyance,

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(ii) Exchange,
(iii) Gift,
(iv) Partition,
(v) Transfer of Lease by way of Assignment,
(vi) Sale,
(vii) Settlement,
(viii) Power of Attorney given for consideration and
(ix) Authorising the attorney to sell the property.
In the case of lease, the amount of registration fees will be dependent either on the premium or
on the sum payable under the lease or period/periods of lease.

Who can present the document for registration?

Section 32 of the Registration Act, 1908 deals with the provisions relating to the presenting of
documents for registration by a person. Subject to certain exceptions, every document which is to
be registered under the provisions of the Act should be presented at the proper registration office
by: (a) the concerned person himself/herself, or (b) the representative or the agent of such a
person duly authorised in manner as is stated in Section 33 of the Registration Act, 1908.

What should be the language of the document?

The language of a document presented for registration should be in a language commonly used
in the district existing in the State. Under section 19 of the Act, the Registering Officer is
empowered to refuse to register a document if it is presented for registration in a language which
is not commonly used in the district unless the document is accompanied by a true translation
into a language commonly used in the district and also by a true copy.

Is a description of an immovable property, which is the subject matter of the document to be

registered necessary to be set out in the Schedule attached to the agreement? Is it necessary to
annexe maps or plans of the immovable property?
Section 21 of the Act deals with the provisions relating to the description of an immovable
property alongwith maps or plans. It is always necessary, with a view to identify the property
involved in a document, that the description of the property is mentioned in a separate schedule,
preferable with maps or plans, so as to enable the Registering Authority to make notes in the
books to be preserved. The description should mentioned the area of the property, the number of
the property, the boundaries of the property, the streets on which it is situated, along with the
name of the village, Taluka, district. The city Survey Number, with Hissa Number if any, should
also be mentioned. It is the discretion of the registering officer to refuse to accept a document if
the description of the immovable property is not sufficient to identify the property correctly.

Is the Registration of a document relating to the transfer of a property in a unregistered society

compulsory?
Yes, in such circumstances it is advisable to register such a type of a document. However, for
further details in a various situations of transfer, please refer to the chart in Annexure XII in page
90 of this book dealing with various situations wherein registration of a document is compulsory
or optional.

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What are those documents, of which registration is optional?
Section 18 of the Act lays down the instruments of which registration is optional. Some of these
instruments are listed as under :-
a) Instruments (other than instruments of gifts and wills) relating to the transfer of an immovable
property, the value of which is less than one hundred rupees.
b) Instruments acknowledging the receipt or payment of any consideration.
c) Lease of an immovable property for a term not exceeding one year.
d) Instruments transferring any decree or order of a court where the subject matter of such decree
or order is an immovable property, the value of which is less that one hundred rupees.
e) Wills.

Is the registration of a document compulsory under the provisions of the Maharashtra Ownership
Flat Act, 1963?
Yes, registration is necessary under the provisions of this Act. Under Section 41(1) of the
Maharashtra Ownership Flats (Regulation of promotion of construction, sale, management and
transfer) Act, 1963, it is laid down that notwithstanding the provisions of any other laws, the
agreement in respect of flats to be sold by the owner/promoter/developer to the flat purchaser
requires compulsorily to be registered under the Registration Act.

Is registration necessary under the provisions of the Maharashtra Apartments’ Ownership Act,
1970?
Yes, registration is necessary under this Act. Under Section 13 of the Maharashtra Apartment
Ownership Act, 1970 it is necessary on the part of the owner/owners to execute a declaration
with regard to description of the land on which the building and improvements are to be located,
including the number of storeys, basements, number of each apartment, area of each apartment,
number of rooms and immediate common area etc. Alongwith a set of floor plans of the building
showing the layout, location, and dimensions of the appurtenance and bearing the verify
statement of an architect certifying that the same is an accurate copy of the floor plans of the
building as filed with and approved by the local authority within whose jurisdiction the building
is located.
Section 13(3) of the said Act requires that in all registration offices a book called Register of
Declarations and Deeds of Apartments under The Maharashtra Apartment Ownership Act, 1970
and a relevant index, be in a particular form and should contain such particulars as the State
Government may prescribe.
Under Section 13(5) of the said Act, the sub-Registrar or Registrar must register the declaration
along with floor plans of the building and the Deed of Apartments in a Register of Declarations
and Deed of Apartments under the said Act and shall also enter the particulars prescribed in the
index kept under sub-section (3). Any person acquiring any apartment or any apartment owner
shall be deemed to have notice of the Declaration and of the Deed of Apartments as form the
date of its registration under this section.

Is registration of the agreement necessary if a person agrees to transfer his right, title or interest
in a premise purchased from an owner/promoter/developer to another person before the society is
formed?
Yes, it is advisable to get an agreement registered in these circumstances.

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Is the registration of an agreement to transfer a flat necessary after the registration of a co-
operative society?
No. After registration of a co-operative society the purchasers of various premises become
members and shareholders of such a society, and as such the members are thereby governed
under the provisions of The Maharashtra Co-operative Societies Act, 1960.
Under Section 41 of the Maharashtra Co-Operative societies Act, 1960, the provisions of clause
(b) and (c) of sub section (1) of Section 17 of the Registration Act, 1908 do not apply to any
instrument relating to shares in a society although the assets of the society consist in whole or in
part of immovable property.
In a registered society, the member actually transfers his right in the shares held by him and
consequently transfers the premises in his use, occupation and possession. Thus, it is not
necessary to register such an agreement.

What are the consequences of non-registration of a document which are compulsorily

registrable?
According to Section 49(c) of the Act, if a document of which registration is compulsory under
Section 17 of Registration Act, has not been registered, it cannot be produced as an evidence in a
court of law.

What is the time frame prescribed for registration of a document?

Under Section 23 of the Act, subject to certain exceptions, any document other than a will has to
be presented for registration Within Four Months from the date of its execution. The term
“execution” means signing of the agreement. Under the present rules and regulations, all
agreements in respect of a transfer of a premise or an immovable property have to be duly
stamped, under the provisions of the Bombay Stamp Act, 1958 before the document is presented
for registration.

What is the remedy, if document is not registered within a prescribed period of four months?
As per the provisions of Section 25 of the Indian Registration Act, 1908 if a document is not
presented for registration within the prescribed time period of four months, and if in such a case
the delay in presentation of the document does not exceed a subsequent period of four months,
then the parties to the agreement can apply to the Registrar, who may direct that on payment of a
fine not exceeding ten times the proper registration fees, such a document should be admitted for
registration.
If the delay goes even beyond these additional four months, can the parties concerned make an
application to condone the delay? And to whom should it be made?
The Parties followed in such an event is that the parties to the document execute a Deed of
Confirmation confirming that the main deed is valid and binding upon them. By way of such a
deed the transferor/s also confirm/s that he/they hold/s no right, title and interest in the property
and the same is being transferred to the transferee/s. A copy of the main deed is annexed to this
Deed of Confirmation. This is the only manner in which the lapse in registration can be rectified.

Can a document relating to an immovable property in India be executed out of India ? If so, can
it then be registered in India?
Yes, a document relating to an immovable property can be executed out of India and later it can
be presented for registration in India. As per Section 26 of The Registration Act, 1908 if a

15
document purporting to have been executed by all or any of the parties out of India is presented
for registration within the prescribed time, the Registering Officer may, on payment of proper
registration fee, accept such document for registration if he is satisfied that :
a) the instrument was executed out of India.
b) the instrument has been presented for registration within four months after its arrival in India.

Does a Deed of Rectification rectifying the mistakes in the names of the parties, the figures, the
description etc. In the duly registered main document require registration?
If the main document/agreement is registered, then in that event it is always necessary to register
the Deed of Rectification too.

Is the Registering Officer empowered to make any enquiry about any person purporting to have
executed the document?
The Registering Officer is empowered under Section 34(3) of The Registration Act, to enquire
whether or not such a document was executed by the person by whom it purports to have been
executed. In order to satisfy himself, the Registering Officer may ask the person appearing
before him to prove his identity. In the case of any person appearing as a representative or agent,
the Registrar may ask for relevant documents which show that the has the right to appear on
behalf of his Principal. After carrying out such an enquiry, the Registering Officer is entitled to
refuse the registration of a document if he is not satisfied with his findings.

What is the recourse available to a person wishing to register a document which has been refused
by the Registrar?
Where the refusal order/direction of the Registrar/Sub-Registrar is on the ground other than that
of denial of execution, the appeal lies to the Registrar under Section 72 of the Act. On such a
refusal to admit a document for registration, any person wishing to register the same should,
within 30 days from the date of refusal, appeal to the Registrar to whom such Sub-Registrar is
subordinate, in order to establish his right to have the document registered.
In such an event, under Section 74 of the Act, the Registrar may enquire whether the document
has been executed and whether the requirements of the law currently in force have been
complied with on the part of the applicant or the person presenting the document for registration,
as the case may be, so as to admit the document for registration.
For the purpose of an enquiry, as per Section 74(4) of the Act, the Registrar is empowered to
issue summons to enforce the attendance of witnesses and compel them to give evidence as if he
were a Civil Court. As per Section 75(1) of the Act, if the Registrar finds that the document has
been executed and that the said requirement had been complied with he can order for registration
of the document. As per Section 77 of the Act, when the Registrar refuses to order the document
to be registered, any person claiming under such a document or his representative, assignee or
agent may within 30 days after making the order of refusal institute a suit in the proper Civil
Court for a decree directing the document to be registered.

What is the procedure on admitting a document to registration?

If all the persons executing the document appear personally before the officer and/or are
personally known to him or if he is otherwise satisfied that they are the persons they represent
themselves to be and if they all admit the execution of the document, the Registering Officer
should register the document as required under Section 58 of the said Act.

16
He should endorse the following particulars, namely :
a) The signature and admission of every person admitting the execution of the document in
person or by his representative, assign or agent;
b) The signature and admission of every person examined in reference to such a document;
c) Any payment of money or delivery of goods made in the presence of the Registering Officer
in reference to the execution of the document and any admission or receipt of consideration
made in his presence in reference to such execution.
If any person admitting the execution of a document refuses to endorse the same, the Registering
Officer nevertheless is empowered to register such a document but he should endorse a note of
such a refusal and as required under Section 59 of the Act, as he should affix the date and his
signature to all endorsements made under Sections 52 and 58 of the Act which is relating to the
same document.
After completion of all formalities related to registration, the Registering Officer shall endorse
on the document a certificate containing the word “Registered” together with the number and
page of the book in which the document has been copied. Later, the endorsements and certificate
shall thereupon be copied into the margin of the Register book. The copy of maps on plans of
any, shall be filed in Book No.1. The registration of the document is then deemed to be
completed and the document is returned to the person who presented the same for registration or
to such other person if any, who has been nominated in writing in that behalf on the receipt
mentioned in Section 52 of the Act. However, such original documents are returned by post or by
hand delivery only after the proper procedure for the preservation of the original document has
been completed by the Registration Authorities.

What is a Power of Attorney?

A Power of Attorney is a document which empowers a specific person to act on behalf of the
person who is executing the same. It also includes any document by which a person is authorised
to appear and act on behalf of a person who is executing the power of attorney. A power of
attorney may also be given by a person to another to appear before any Court, Tribunal or
Authority or before a Co-operative Society or any Body or Association.

Is the confirming parties Income Tax Clearance Certificate required while registering an
agreement?
No, the confirming parties Income Tax Clearance Certificate is not required while registering an
agreement as held in the judgement delivered by the Bombay High Court in the Writ Petition
No.734 of 1993 on 13.6.95 in the case of Freight Wings and Travels Pvt. Ltd. and others v/s. Sub
Registrar of Mumbai and others.

In what circumstances income tax clearance certificate of the seller required while registering the
document?
Income Tax Clearance Certificate of the seller is required if the apparent consideration exceeds
Rs. Five Lacs.

What other documents are required while registering a document?

The parties should as far as possible:-
a) Obtain an Income Tax Clearance Certificate of the seller for all properties above Rs. Five Lacs
and the NOC from the Appropriate Authority if applicable (if the consideration exceeds Rs.

17
Seventy Five Lacs for the city of Mumbai then the permission from the Appropriate Authority
will be required).
b) Get the documents adjudicated from the Collector of the Stamps and duly certified that the
proper stamp duty has been paid.
c) Comply with the formalities of Urban Land Ceiling and Registration Act, 1975 (if applicable)
if the area exceeds 500 sq.mts.
If the above formalities are not complied then the original agreement will not be received by the
parties after registration.

Where the registration of document is done?

As per Section 28 and 29 of the Registration Act the document should be presented for
registration at the office of the Sub-Registrar of Assurances within whose sub district the whole
or some portion of the property to which such document relates is situated or in the office of the
Sub-Registrar situated at Mumbai, Delhi, Madras or Calcutta.

Under what circumstances the registration of document is refused?

The normal grounds for non-registration of document/s are:-
a) Document is opposed to public policy.
b) Parties have not complied with the formalities as laid by the Registration Act and by any
reasons by which registering authority is not satisfied.
c) The Survey No. Of the property is not mentioned in the document/s.
d) The language in which the document is executed is not in the language that is normally
prevalent in the area where the office of the registering authority is situated.

How is the title of the property verified?

Normally the person purchasing the property has to ensure that the seller has a good and
marketable title. In order to find out if the title of the seller is clear and marketable, one has to
take search of the property. The search of the property has to be taken at the offices of the
relevant Sub-Registrars, normally 30 years search has to be taken. The purchaser can also ask
copies of the documents lodged with the office of the Sub-Registrar to the seller. The objections
pertaining to the title of the property can be easily verified after taking the search, for example :
if the party has mortgaged and registered the documents with the Sub Registrar of Assurances
then it can be known only after taking the search of the property. After satisfying the title of the
property the party should proceed with the transaction
What are the different types of fees?
Various kinds of fees and their particulars as of date are listed below
1. Registration fee: Charged as service fee and 1% of the market value of the property.
Maximum limit on registration fee charged is Rs. 25000/-.
2. Copy fee: levied at Re. 1 for 2 folios (1 folio = 100 words) for making a copy of the document.
3. Postage fee: for dispatching the document to the executant by post.
4. Search fee: charged for search of the document as per the applied by the party. The amount
depends on no. of years on which search is to be taken Rs. 5 for first year and Rs. 2 per
subsequent year.
5. Fine: The executant is fined for lapses on his part in following cases

a) As per section 25 of The Registration Act the executant is fined if he does not present the

18
 document at the SRO within four months of date of execution .The time frames and fine amount
are as
1. Fine is 2.5 times of the registration a fee for the first month after the initial four-month period.
2. times the registration fee for second month.
3. 7.5 times the registration fee for third month.
4. 10 times the registration fee for fourth month.

b) As per section 34 starts if the executants fails to register the document four months after the
date of admission. The fine to time span relation remains same as prescribed in section 25.
* Fine charged is inclusive of the registration fee.
* Fine is not levied simultaneously under both 25 and 34 sections.
6. Certified copies fee: fixed and charged for providing the applicant with a true copy of
document.
7. Index II fee: for giving a copy of Index II to the applicant
8. Extra fee: charged towards recovery of partly paid registration fee.
9. Comparing fee: fixed and applicable when two copies of printed document are to be manually
compared for mismatches if any.
10. Filing fee: levied for binding the document in the volume.
11. Power of Attorney fee: separate format. Fixed at Rs.5 for general and Rs.3 for special.
12. Attendance fee: Applicable if the SR has to personally visit the executant at his place of
convenience for admission and identification.
13. Will registration fee: fixed at Rs. 20 for registering the will at JDR office.
14. Will opening fee: fixed at Rs.20 and levied for opening the sealed will envelope.
15. Will withdrawal fee: Applicable if the applicant reverts already registered will, fixed Rs. 20.
16. Dead stock fee sales fee: charged on dead stock sold at government offices.
17. Traveling expenses: For court attendance of an official. Claimed in TA bills and paid by the
client.
18. Allowance: payable according to no. Of days of travel and place of travel.
19. Marriage fee: Fixed for registering a marriage. Fixed Rs. 3.

5. Income Tax Act

1. Taxes in India are of two types, Direct Tax and Indirect Tax.
2. Direct Tax, like income tax, wealth tax, etc. are those whose burden falls directly on the
taxpayer.
3. The burden of indirect taxes, like service tax, VAT, etc. can be passed on to a third party.

Income Tax is all income other than agricultural income levied and collected by the central
government and shared with the states.
According to Income Tax Act 1961, every person, who is an assessee and whose total income
exceeds the maximum exemption limit, shall be chargeable to the income tax at the rate or rates
prescribed in the finance act. Such income tax shall be paid on the total income of the previous
year in the relevant assessment year.
The total income of an individual is determined on the basis of his residential status in India.

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 Residence Rules

An individual is treated as resident in a year if present in India

1. for 182 days during the year or
2. for 60 days during the year and 365 days during the preceding four years. Individuals
fulfilling neither of these conditions are nonresidents. (The rules are slightly more liberal for
Indian citizens residing abroad or leaving India for employment abroad.)

A resident who was not present in India for 730 days during the preceding seven years or who
was nonresident in nine out of ten preceding yeas I treated as not ordinarily resident. In effect, a
newcomer to India remains not ordinarily resident.

For tax purposes, an individual may be resident, nonresident or not ordinarily resident.

Non-Residents and Non-Resident Indians

Residents are on worldwide income. Nonresidents are taxed only on income that is received in
India or arises or is deemed to arise in India. A person not ordinarily resident is taxed like a
nonresident but is also liable to tax on income accruing abroad if it is from a business controlled
in or a profession set up in India.

Capital gains on transfer of assets acquired in foreign exchange is not taxable in certain cases.

Non-resident Indians are not required to file a tax return if their income consists of only interest
and dividends, provided taxes due on such income are deducted at source.

It is possible for non-resident Indians to avail of these special provisions even after becoming
residents by following certain procedures laid down by the Income Tax act.

Know how of Income Tax

1. Income tax is levied on the 'total income' of the assessee.

2. Income of the 'previous year' is taxed in the 'assessment year.'
3. Income is classified into and compted under five categories called 'heads of income.'
4. The basic scheme of income tax is the principle 'pay as you earn.'
5. One must pay his taxes in advance and by the due dates, in the prescribed percentages.
6. Deferment in the payment of advance tax would result in the payment of interest.

The income tax basic scheme is explained in brief as:

 Income tax is levied on the 'total income' of the assessable entity which is computed
under the provisions of the Act.
 The income which are pertaining to the 'previous year' is taxed, but in the 'assessment
year.'
 Income tax is charged at the rates being fixed by the for the year by the annual Finance
Act. But the liability to pay the tax is based on the principle 'pay as you earn.'

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Pay as you earn
A persone is not allowed to wait until 31 March to pay his/her taxes. The Income Tax Act has the
provision of 'pay as you earn.' This do not pinch a tax payer at the end of the year making a lump
sum payment. Such payments are done during the previous year in the form of 'TDS', 'TCS' and
'advance tax.'

TDS (Tax deducted at source)

This tax is deducted at the source of income, by the employer or the payer and paid to the
government. It includes salary, interest, commission and contract fees, rent, professional fees,
etc. This type of deduction is popularly known as TDS. Such tax is subject to certain limits and
certain conditions. For example if the earning up on fixed deposit is Rs. 5,000 in a bank, TDS at
10% and education cess at 2% i.e. a total of 10.2% will be deducted at the time of credit or at the
time of payment, whichever is earlier.

In case of senior citizen, if he/she estimates that the tax on the income is nil, Form No.15H duly
filled and signed is to be submitted in duplicate to the bank. So, no TDS will be deducted. If the
total income is less than the threshold limit, Form No.15G is to be submitted to the payer to
prevent TDS from such interest.

TCS (Tax collected at source)

Unlike tax deducted at source, TCS is collected by a seller of certain specified goods at the
specified rates on the purchase of the goods and it is remitted to the treasury on behalf of the
buyer. In the same way, a person granting a lease or license in a parking lot, toll-plaza, etc.
collects the taxes at the specified rates as tax paid on behalf of the lessee.

Advance Tax
Advance Tax is paid by the income earner during the previous year. The computing of the
liability of advance tax is done by estimating the 'total income' for the year, calculating the
surcharge and taking into consideration the rebate that will be available. The advance tax is
required to be paid in three installments.

Schedule of Advance Tax

On or before 15 September
On or before 15 December
On of before 15 March
Not less than 30% of advance tax
Not less than 60% of advance tax as reduced by amount paid
earlier
Full advance tax as reduced by the amount or amounts if any,
paid in earlier installments

If the assessee does not pays the advance tax as described above, an interest of 1% is charged per
month for 3 months for the deferment of advance tax installment. If the total amount of advance
tax is not paid on or before 15 March, an interest of 1% is charged for one month.

Further, if the total advance tax paid is less than 90% of the advance tax payable, the interest at
1% per month is charged for the shortfall in the advance tax paid for the period commencing
from 1 April of the assessment year and ending on the date of payment or assessment, whichever
is earlier.

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The Income Tax history in modern India dates back to 1860. In this year first Income Tax Act
was introduced and which remained in force for a period of 5 years. This Act lapsed in 1865.
Thereafter Act-II of 1886 was in force. This Act of 1886 was the improved version. It introduced
the definition of agricultural income and the exemption it granted in respect of agricultural
income has continued to be a feature of all subsequent legislations.

The year 1918 saw the introduction of Act VII of 1918, it recasted the entire tax laws. This Act
was designed keeping in mind the remedy to certain inequalities in the assessment of individual
tax payers under the 1886 Act. The Act introduced the scheme of aggregating income from all
sources for the purpose of determining the rate of tax.

The Indian Income Tax Act, 1922 which came into being as a result of the recommendations of
the All India Income Tax Committee is a milestone in the evolution of Direct Tax Laws in India.
Its importance lies in the fact that the administration of the Income Tax hitherto carried on by the
Provincial Governments came to be vested in the Central Government.

The Act of 1922, similar to the Act of 1918, applied to all incomes "accruing or arising", or
received in British India, or deemed to be accrued, arisen or received. This Act marked an
important change from the Act of 1918 by establishing the charge in the year of assessment on
the income of the previous year instead of merely adopting the previous year's income as a
measure of income of the year of assessment.

The Act made a departure by abandoning the system of specifying the rates of taxation in its own
Schedules. It left the rates to be announced by the Finance Acts, a feature which survives to this
day. It also enabled loss under one head of income to be set-off against profits under any other
head, so that the tax was chargeable only on net income.

The Act of 1922 remained in force till the year 1961. In 1956 the Government had referred the
Act to the Law Commission to recast it on logical lines and to make it simple without changing
the basic tax structure. The present Income Tax Act is the Act of Sept., 1961.

Income Tax Timeline in India

1860 1860 Introduced for the first time for a period of five years to cover the 1857 mutiny
expenses. It was abolished in 1873
1877 1877 The tax system was revived as a result of the Great Famine of 1876
1886 1886 Introduced as Act II of 1886. It laid down the basic scheme of income tax that
continues till the present day
1918 1918 Introduced as Act VII of 1918. It had features like aggregation of income from various
sources for the determination of the rate, classification of income under six heads and
application of the Act to all income that accrued or arose or was received in India from
whatever source in British India.
1922 1922 On the recommendations of the All-India Income Tax Committee, the father of the
present act was introduced. The central government was vested with the power to administer
the tax
1961 1961 The Act came into force from 1 April 1962, it extended to the whole of India
1997 1997 Establishment of the Tax Reform Committee under the chairmanship of Dr. Raja J.
Chelliah. It was followed by restructuring the income tax with parameters like lower taxes,

22
 fewer slabs, higher exceptions, etc
2003 The Kelkar Task Force, which was followed by outsourcing of PAN/TAN, exemption of
dividend income, compensated by levy of the dividend distributed tax to be paid by the
company

Income Tax - Taxable Heads of Income

Remuneration for work done in India is taxable irrespective of the place of receipt.

Remuneration includes
 Tax upon salaries and wages
 Tax upon pension
 Tax upon bonus, fees and commissions
 Tax upon Gratuity
 Tax upon Annuity
 Tax upon profits in lieu of or in addition to salary
 Tax upon advance salary and perquisites

Others:
 Tax upon Allowances
 Tax upon Deferred compensation
 Tax equalisation

Besides remuneration for work, individuals may be taxed on the following income:

Tax upon Income from house property

The annual value of property, consisting of any buildings or lands appurtenant thereto of which
the assessee is the owner, other than such portions of such property as he may occupy for the
purposes of any business or profession carried on by him, the profits of which are chargeable to
income tax, shall be chargeable to income tax under the head "Income from House Property".

Tax upon Income from business or professions

For charging the income under the head "Profits and Gains of business," the following conditions
should be satisfied:
 There should be a business or profession
 The business or profession should be carried on by the assessee.
The business or profession should have been carried on by the assessee at any time during the
previous year

Tax upon Income from capital gains

Capital asset means property of any kind held by an assessee whether or not connected with his
business or profession

Tax upon Income from other sources

Income of every kind, which is not chargeable to income tax under the heads
 salary

23
 income from house property,
 profits and gains of business and profession,
 capital gains can be taxed under the head "income from other sources".
However such income should also not fall under income not forming part of total income under
the IT Act.

Tax upon Clubbing of Income

The total income of an individual also includes certain income of other persons. These are: -
1. income of spouse from,
 remuneration derived from the concern in which the individual is substantially interested
unless the remuneration is by virtue of the application of technical or professional skill possessed
by him or her;
 assets transferred by the individual to the spouse or to any other person for the benefit of the
spouse unless the transfer is for adequate consideration or in consideration of an agreement to
live apart.
2. income of son's wife from assets transferred by the individual to her or to any other person
for her benefit unless the transfer is for adequate consideration.
3. income of his minor child - other than the minor child suffering from disability specified in
section 80-U, referred to in para 5.3.9 except when such income arises to the child on account of
any manual work done by him or on account of any activity which involves application of any
skill, talent or specialised knowledge and experience

The individual in whose income the income of other spouse as mentioned in (a) (i) above is to be
included will be the husband or wife whose total income - before including such remuneration
income - is greater. Similarly the income of minor child is to be included in the income of the
parent having greater income. If the marriage of the parents does not subsist, it will be parent
who maintains the child.

Avoidation of double taxation

Since a 'resident' is liable to pay tax in India on his 'total world income', it is possible that he may
have to pay tax on his foreign income in that country also, where it is earned. Such situation
leads to double taxation of the same income -in India and again in the country where it is earned.
To avoid such a situation, the Government of India has entered into agreements for avoidance of
double taxation with different countries

Filing of Return - compulsory

Earlier the one-by-six scheme that prescribed the return was to be filed compulsorily, if any of
the following six items were present and whether the person had taxable income or not:
 Occupation of a House
 Ownership of a motor car
 Expenditure on foreign travel
 Holder of credit card
 Electricity payments in excess of Rs 50,000/annum.
Member of a club - where the entrance fee is more than Rs 25,000/-

Admin. & Procedures - Types of Assessments

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 Basically assessment is estimation for an amount assessed while paying Income Tax. It is a
compulsory contribution that is required for the support of a government. It is generally of the
following types
Self assessment
The assessee is required to make a self assessment and pay the tax on the basis of the returns
furnished. Any tax paid by the assessee under self assessment is deemed to have been paid
towards regular assessment.
Regular assessment
On the basis of thereturn of income chargeable to tax furnished by the assessee an intimation
shall be sent to the assessee informing him about the tax or interest payable or refundable to him.
Best judgement assessment
In a best judgement assessment the assessing officer should really base the assessment on his
best judgement i.e. he must not act dishonestly or vindictively or capriciously. There are two
types of judgement assessment:
1. Compulsory best judgement assessment made by the assessing officer in cases of non-co-
operation on the part of the assessee or when the assessee is in default as regards supplying
information’s.
Discretionary best judgement assessment is done even in cases where the assessing officer is not
satisfied about the correctness or the completeness of the accounts of the assessee or where no
method of accounting has been regularly and consistently employed by the assessee.
Income escaping assessment or re-assessment
If the assessing officer has reason to believe that any income chargeable to tax has escaped
assessment for any assessment year assess or reassess such income and also nay other income
chargeable to tax which has escaped assessment and which comes to his notice in course of the
proceedings or any other allowance, as the case may be.
Precautionary assessment
Where it is not clear as to who has received the income, the assessing officer can commence
proceedings against the persons to determine the question as to who is responsible to pay the tax

Income Tax - Tax Planning

 Investing in a senior citizen's name can result for the higher tax exemption one enjoys.
 Certain investments offers higher return to senior citizens.
 Through gifts made to a senior citizen, investment can be made.
 Tax-free investments can be made in the name of any family member.
 A self-occupied house should be bought in the name of the member in the highest tax
bracket.
 A salary earner can reduce his tax by paying rent to the family member owning the house
There are different considerations while planning of family investments. They are as follows:
 Choosing the right member's fund for investments.
 Availability of the concessions on the initial investment and the returns.
 The tax liability of such earnings.
 Taxability of sums received on maturity.
 Capital generation needs of each member.
 The age of the investor

25
 Investment made in the name of Senior Citizens:
 Higher basic exemption limit and increased rate of return.
 Rs. 1.85 lakh is exempt from tax (F.Y. 2005-06).
 With investment or utilising, a senior citizen may not pay tax up to Rs. 2.85 lakh.
 Certain investment schemes offer higher rates of return or are open for senior citizens.
Investing in these increases the earnings of the family.
 Funds for a senior citizen can be generated by gifts from a high net worth member. It would
not suffer tax.
 The earnings are reinvested to increase income in the subsequent years.

Tax-exempt Investment
It can be made in the name of any member but one should keep in mind to make it through such
member whose chance of falling in the highest tax bracket is the least in the long run. It can be
made in the name of minor so that parents does not have to pay the tax even after clubbing
Concessional Tax Treatment
Certain investments attract tax concessions, like short-term capital gains on the transfer of shares
through recognised stock exchanges. It is taxed only at 10% flat. Investment on shares can be
made in any members name as it do not result in any differential tax outflaw
Investment on Business Premises
An investment can be made in office/ business premises in the name of a member who is not the
proprietor of the business. Take an example, a person carrying a retail business can buy a shop in
the name of another member and then take it on rent. The rent paid is tax-deductible. The rent
earned by the member of the family paying lesser or negligible tax suffers lesser tax than the tax
paid by the owner of the business.
Salary Earners and HRA
A salary earner can reduce tax liability by paying rent to a member of his family who owns his
house in which the former resides, provided the member falls in lower tax bracket. But before
practising this one must take into consideration the place where the house is located, the local
laws on letting out property on rent, like stamp duty, registration charges, leave and license
agreements. The rent should be perfectly paid by cheque and on regular basis through the year to
prove authenticity of the transaction.
Joint Ownership of a Residential House
In case of joint ownership where the shares are in an agreed ratio, each co-owner's share of the
income from the property will be included in his/her total income while filing returns. While
taking loans, the co-owner can take in any ratio, irrespective of the sharing ratio. Hence, it is
beneficial for the person in higher tax bracket to borrow more. It helps him/her to save more tax
on interest deductions.
Owning House Property
A self-occupied house should always be bought by the person with highest tax bracket. This will
not fetch any return and the fall in his investible surplus will reduce his future income and future
tax liability. Investment made in the name of Senior Citizens
 Higher basic exemption limit and increased rate of return.
 Rs. 1.85 lakh is exempt from tax (F.Y. 2005-06).
 With investment or utilising, a senior citizen may not pay tax up to Rs. 2.85 lakh.
 Certain investment schemes offer higher rates of return or are open for senior citizens.
Investing in these increases the earnings of the family.

26
 Funds for a senior citizen can be generated by gifts from a high net worth member. It
would not suffer tax.
The earnings are reinvested to increase income in the subsequent years
Owning House Property
A self-occupied house should always be bought by the person with highest tax bracket. This will
not fetch any return and the fall in his investible surplus will reduce his future income and future
tax liability

6. Foreign Contributions Regulations Act

Foreign Contribution (Regulation) Act, 1976

Objective
An Act to regulate the acceptance and utilisation of foreign contribution or foreign hospitality by
certain persons or associations, with a view to ensuring that Parliamentary institutions, political
associations and academic and other voluntary organisations as well as individuals working in
important areas of national life may function in a manner consistent with the values of a
sovereign democratic republic and for matters connected therewith or incidental thereto.

Applicability
Like FEMA, the FCRA has extra-territorial jurisdiction. It extends to the whole of India, as well
as to:
 citizens of India outside India; and
 associates, branches or subsidiaries, outside India of companies or bodies corporate
registered or incorporated in India.

Important Definitions
 Foreign contribution
Essentially, it refers to donations in cash or kind. It also includes any foreign security as defined
under FERA (Now, FEMA), as well as any currency, be it Indian or foreign. However, it does
not include personal gifts whose market value in India on date of such gifts is Rs. 1,000/- or less.
It is further clarified that a donation, delivery or transfer of any article, currency or foreign
security shall be deemed to be foreign contribution when received by any person from any
foreign source, whether directly or indirectly, through one or more persons.

e.g. A Christian Missionary under whose umbrella a number of other missionaries are
functioning. If such head missionary receives any donation and who turn transfers the amount to
its sister missionary, then in such a circumstances, the transfer received by the sister missionary
will be treated as foreign contribution and the FCRA shall apply accordingly

 Foreign Source
The definition is an inclusive one. It includes:
 Government of any foreign country or territory and agency of such Government,
 any international agency not being the United Nations or any of its specialised agencies,
the World Bank, International Monetary Fund or such other agency as Central Government may
by notification in Official Gazette specify in this behalf,

27
 a foreign company within the meaning of section 591 of the Companies Act, 1956 and
also includes
a) a company which is a subsidiary of a foreign company, and
b) a multi-national corporation within the meaning of this Act,
 A corporation not being a foreign company, incorporated in foreign country or territory,
 A multi national corporation within the meaning of this Act,
 A company within the meaning of the Companies Act, 1956 if more than one half of the
nominal value of its share capital is held, either singly or in the aggregate by one or more of the
following, namely:
a) Government of foreign country or territory,
b) Citizens of a foreign country or territory,
c) corporations incorporated in a foreign country r territory,
d) trusts, societies or other associations of individuals (whether incorporated or not)
formed or registered in a foreign country or territory,
 a trade union in any foreign country or territory, whether or not registered in such foreign
country or territory,
 a foreign trust by whatever name called or a foreign foundation which is either in the
nature of trust or is mainly financed by a foreign country or territory,
 a society, club or other association of individuals formed or registered outside India,
 a citizen of foreign country,

but does not include any foreign institution which has been permitted by Central Government, by
notification in Official Gazette, to carry on its activities in India.

Contribution given by Non-Resident Foreign Citizen of Indian Origin but of funds held in NRI
and FCNR account maintained in India would also attract FCRA regulation and would be treated
as "foreign source". Thus, we find that the definition of "foreign source" is very exhaustive. It
not only includes foreign company per se (i.e. a company incorporated outside India having a
place of business in India) but also covers subsidiary of such company (may be Indian
subsidiary, too). It includes multi-national corporations as well. However, the United Nations,
th€ World Bank, IMF, etc., are not covered by this definition

E.g: Donation from Hindustan Lever by an association would be a foreign contribution. Even a
donation mad by a liaison/project office or a branch of a foreign company would be termed as a
foreign contribution

NRI who is an Indian citizen is not considered as a foreign source and hence donation received
from NRI is not a foreign contribution even if it is in convertible foreign exchange. However, if
he is a foreign citizen then the NRI will be considered as a foreign source.

Multi –National Corporations(MNC)

MNC has been defined to mean a corporation incorporated in a foreign country or territory if
such corporation
 has a subsidiary or a branch or a place of business in two or more countries or territories
 carries on business, or otherwise operates, in two or more countries or territories.

28
 General Prohibition

Following categories of persons are prohibited from accepting any foreign contribution
 Candidate for election,
 Correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered
newspaper,
 Judge, Government servant or employee of any Government corporation/undertaking,
 Member of any Legislature,
 Political party or office-bearer thereof.
Exemptions from General Prohibition

In following situations, persons specified supra may accept foreign contribution.

 Salary, wages or other remuneration from any foreign source or payment in the ordinary
course of business transacted in India by such foreign source; or
 Payment in the ordinary course of business or in the course of international trade or
commerce; or
 Working in the capacity of an agent of a foreign source in relation to any transaction
made by such foreign source with Government; or
 Acceptance of gift or presentation as a member of any Indian delegation subject to the
provisions of the Foreign Contribution (Acceptance or Retention of Gifts or Presentations)
Regulations, 1978;
 Receipt of contribution from Relative: Prior approval of the Central Government is not
required if the amount of contribution does not exceed, in value, Rupees eight thousand per
annum and an intimation is given to the Central Government about the amount received, purpose
and the manner in which the same is utilized. 'Relative' has the same meaning as it is assigned in
the Companies Act, 1956.
 Remittance received in the ordinary course of business, through any official channel, post
office, or any authorised dealer in foreign exchange.

Central Government has reserved power to prohibit any person including exempted category as
mentioned above from accepting foreign contribution if it finds reasonable causes to do so.

Organisations of Political Nature

Organisation of political nature, not being a political party may accept any foreign contribution
with prior permission of Central Government. Organisation of political nature not being a
political party is defined to mean "organisation" notified as such by the Central Government in
the Official Gazette, having regard to the activities the organisation or the ideology propagated
by the organisation or the programme of the organisation or the association of the organisation
with the activities of any political party.

Certain Association and Persons [Section 6J]

 Association having a definite cultural, economic, educational, religious or social

programme can accept foreign contribution upon fulfillment of following conditions:

29
a) such an association should register itself with Central Government in accordance
with rules made under this Act; and
b) such an association agrees to receive such foreign contributions only through
designated branch of a bank as it may specify in its application for registration; and Intimation
has to be given to Central Government with following details
c) the amount of foreign contribution,
d) the source of foreign contribution, and
e) the manner of utilization.

Consequences of Default

In case of failure to comply with any of the conditions mentioned above, the Central Government
may issue notification in the Official Gazette that the defaulting association would require its
prior approval before accepting any further foreign contribution.

Unregistered Association

An association, which is not so registered, may accept any foreign contribution after obtaining
prior permission of the Central Government and shall also give an intimation to the CG about the
amount, the source, the purpose and the manner of utilization of such foreign contribution.

Designated Bank Account

An association granted prior permission or registration under the Act can receive the foreign
contribution and subsequently utilize it using a single designated bank account, as intimated in
the application form. Do not deposit any local funds in this bank account.

Time Limit for Disposal of Applications

An application for registration is normally disposed within six months. An application seeking
prior permission is disposed within 90/120 days.
It is advisable to obtain a certificate, in the format incorporated at the end of the application
form, from any of the competent authority mentioned therein viz., Any concerned - Collector of
District; Department of the State Government; Ministry/ Department of the Government of India.

Filing of Returns

An association permitted to accept foreign contribution is required to submit an annual return,

duly certified by a Chartered Accountant, giving details of the receipt and purpose wise
utilization of the foreign contribution. The return is to be filed for every year (1st April to 31st
March) within a period of four months from the closure of the year, i.e. by 31st July of each year.

The return is to be submitted, in duplicate, in Form FC-3. It is to be accompanied with the

balance sheet and statement of receipt and payment, duly certified by a Chartered Accountant,
also in duplicate.

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 Time limit for Intimation

The time limit for intimation to Central Government of receipt of foreign contribution is four
months after the closure of the year in case of both registered as well as unregistered association.
The intimation should be in form FC-3 in duplicate and shall be sent to Secretary to the
Government of India, Ministry of Home Affairs, New Delhi by registered post.

Recipients of Scholarships, Stipend, etc.

Every citizen of India (whether in India or abroad) who is in receipt of any scholarships, stipend
or any similar payment from any foreign source shall give intimation thereof to Central
Government.

Intimation

Rule 4(c) provides that such intimation should be submitted in form FC-5 within 30 days of
receipt of such scholarships, stipend or payment of like nature. However, if such citizen is
residing outside India, then time limit for intimation is sixty days.

However, if any recurring payments are being received as discussed above, it shall be sufficient
if the intimation referred above includes precise information as to the intervals at which, and the
purpose of which, such recurring payments will be received.

Exemption from Intimation

Rule 5 provides exemption from such intimation in case the value of such scholarship, stipend or
other payment does not exceed thirty six thousand rupees, in an academic year.

In calculating the value -

 the amount received by citizen for purchase of books, clothing and equipment and for
sight-seeing in a foreign country or territory shall be taken into account; but
 the amount spent in travel by air in economy class from India to a foreign country or
territory and back to India from such foreign country or territory, and the amount spent by the
foreign source in respect of such citizen towards tuition and other fees, shall not be taken into
account.

Maintenace of Accounts

Rule 8 of the Foreign Contribution (Regulation) Rules, 1976, provides that a separate set of
accounts and records shall be maintained exclusively for foreign contribution received and
utilized.

Such accounts shall be maintained on an yearly basis from April to March. A certificate from a
Chartered Accountant in Form FC-3 along with a balance sheet and statement of receipt and
payment shall be submitted, in duplicate, to the Secretary to Government of India, Ministry of

31
 Home Affairs, New Delhi, within four months after the closure of the year (i.e. on or before 31st
July, 2001).

Checklist

Checklist for ensuring proper submission of applications, under the provisions of the Foreign
Contribution (Regulation) Act, 1976, for acceptance of foreign contribution

 Eligible category
An association with a definite cultural, economic, educational, religious or social programmed
 Types of permission
a) Registration under Section 6(1)(a); and,
b) Prior permission under Section 6 (I A)
 Application form
a) For grant of registration in form FC-8; and,
b) For grant of prior permission in form FC-IA.
 Essential requirements
a) Bank Account
Open a separate bank account for the receipt and utilisation of foreign contribution in a bank of
your choice and furnish particulars of the same at the appropriate place.

Do not deposit any local funds, other than the essential initial deposit specified by the bank for
opening an account, in this account.

b) Documents
Remember to enclose copies of the following documents with your application:-
1. Certified copy of registration certificate or Trust deed, as the case may be;
2. Details of activities during the last three years;
3. Copies of audited statement of accounts for the past three years (Asset and Liabilities,
Receipt and Payment, Income and Expenditure)
4. Commitment letter from foreign donor specifying the amount of foreign contribution
(only with prior permission application);
5. Copy of project for which foreign contribution was solicited/is being offered (only with
prior permission application);
6. If functioning as editor, owner, printer or publisher of a publication registered under the
Press and Registration of Books Act, 1867, a certificate from the Press Registrar that the
publication is not a newspaper in terms of section 1 (1) of the said Act

 Miscellaneous
Furnish information exactly in the manner asked for in the form, especially the names and
addresses of the members of the Executive Committee/Governing Council, etc.
The forms can be downloaded from Ministry of Home Affairs Web Site at
http://mha.nic.in/fcra/intro/forms.html.

 Chartered accountants/banks

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(i) Chartered Accountants, before certifying the accounts of an association in form FC-3, must
ensure that they have been prepared in accordance with the provisions of the Foreign
Contribution (Regulation) Act, 1976 and the Rules framed there under.

No bank should credit any foreign contribution to the account of an association/organisation

unless it produces documentary proof of having obtained registration/prior permission from the
Central Government for the same. Crediting of foreign contribution by a bank to the account of
an association/organisation that has not obtained registration or prior permission from the Central
Government constitutes a violation and will render the defaulting bank liable for action by the
Reserve Bank of India.

33
Basic Financial,
Accounting and
Regulatory
Requirement, Records
and Principles

Chapter – 02

34
Basic Financial, Accounting and Regulatory Requirements

Type of Accounting System and Recording of Financial Transactions

Accounting starts with basic record keeping (or bookkeeping). When your organization is just
getting started, your bookkeeping system will probably be based on what's called a cash-basis
accounting system, rather than accrual-basis system. Many organizations, when starting out,
use the cash-basis system and a checkbook to track transactions. In the "memo" portion of the
checkbook, they note if the amount depicted on the check is an expense or revenue, and where
the amount came from or is going to. As your organization grows, you'll begin using ledgers to
track transactions, for example, you'll post cash receipts to a cash receipts journal and checks
you write to a cash disbursements journal.

As your nonprofit grows and as you begin using the accrual method, you'll likely need more
types of journals, for example, a Cash Receipts Journal, Cash Disbursements Journal, Payroll
Journal, Accounts Receivable Ledger, Accounts Payable Ledger, Sales Journal, Purchases
Journal and General Ledger.

(In an accrual-basis system, you post entries when you earn the money and when you owe it.
Small organizations usually do not have the resources to use an accrual-based system. However,
financial statements are prepared on an accrual basis. As a compromise, many organizations use
the cash-based basis to record entries in journals, but get help to convert to an accrual-based
basis to generate financial statements.)

You can do postings using a single-entry or double-entry method. Double-entry works from a
basic accounting equation "assets = liabilities + capital". The double-entry method makes sure
that your books are always in balance. Every transaction has two journals entries, a debit and a
credit. Each transaction effects both sides of the equation.

Each posting might refer to accompanying documents that you keep in a file somewhere. For
example, postings about cash receipts might refer to invoices that you sent to a clients which
prompted them to write checks to your organization (checks which you posted as cash receipts).
For example, postings about cash disbursements might refer to invoices that were sent to your
organization which prompted you to write checks (checks which you posted as cash
disbursements.) When you make a deposit to the bank, you'll file the bank's deposit receipt in a
file

Manual or Automated Accounting System

Your record keeping system will be based on a manual system (where you make entries and total
them by hand) or a computer system. You might even choose to outsource your record keeping
system to another business that manages your bookkeeping activities (along with other financial
management activities) for you.

Soon you may evolve to using a computer-based system, which greatly automates entry of
transactions, updating of ledgers, generation of financial statements and financial analysis (more

35
on these later), and generation of reports needed for filing taxes, etc. The only drawback to using
a computer is that you might underestimate the importance of knowing how your accounting
processes really work -- that's an advantage of doing the bookkeeping yourself, if only for a few
months. You should also generate your own financial statements and financial analysis at least
for a couple of months. Having this knowledge and experience helps you develop an instinct for
getting the most out of your financial resources

Financial Management for Not for Profit Organisation

Management of “Not for Profit” organisations is distinct from Management of “for profit” or
commercial organisations. The primary reason being that the organisational objective of a
commercial organisation is mainly to ensure accretion of wealth to the stakeholders or a return
on investment. The criteria for measuring these objectives are laid out in various management
theories and effectiveness or the efficiency of the managers are measured to a large extent by the
amount of profits earned. On the other hand the “Not for Profits” exist primararily to render
service without a profit motive. The measurement of the effectiveness of the management of
such institutions are therefore more complex in that the delivery of service and the benefits
accruing to the beneficiaries form a major component of the evaluation

The absence of Profit motive makes it rather difficult to measure the performance of a Not for
profit organisation. Unlike profits which are an overall comprehensive parameter for
performance evaluation in a commercial organisation, in the NPO’s this parameter not being
available , other performance evaluation parameters are needed for this sector.

One of the primary characteristic of a not for profit whatever be the constitution of the
organisation, is non transferability of ownership. This attribute is of major significance for the
reason that in a “for profit” enterprise, ownership can be transferred resulting in accretion of
wealth over a period of time. As against this in a “not for profit” organisation, the members do
not under normal circumstances receive any direct economic gain by virtue of their investment in
the enterprise , the constitution per se ensuring that the organisation does not exist to generate
profits for its owners , managers or members.

A significant aspect of the NPO sector is that significant resources by way of human resources,
financial resources, and economic resources are available from resource providers who in most
cases do not expect to either receive repayment or any significant economic gain from such
contributions. The beneficiaries of the sector do not pay anything or maybe at times only a part
of the cost that is imparted to secure for them economic gain from the NPO’s from whom they
seek assistance. However most resource providers seek accountability from the NPO’s on
resource utilisation and service delivery. This is a crucial aspect of the Management process of a
NPO.

The NPO sector is based on voluntarism. This is the single most outstanding aspect of this sector.
The voluntary service provider includes the unpaid trustee, members, patrons and the social
worker whose collective contribution in terms of time money and effort goes a long way to
sustain the long term effects the services rendered by the non profits to the community. The NPO

36
 sector harnesses the power of the voluntary services to the community and a major challenge of
the sector is sustain this power of voluntarism.

NPO’s come in all size and shapes. Some of them address local causes and issues. Others address
global causes. Many address issues that face the community at large. The fact that this sector is a
vital contributory in the maintaining of the conscience of society makes it a challenging arena for
management of resources

Relevant legal provisions

Legal compliance

Complying with the law of the land is an absolute must for the effective functioning of an NPO.
These can be grouped under two categories-
 Constituting legislature - The Indian Trust Act, The Societies Registration Act, The
Companies Act
 Monitoring Legislature – The Income Tax Act, Foreign Exchange Management Act, Foreign
Contribution (Regulation) Act

Constituting Legislature

There is no national regulatory authority or legal framework in India governing the NPO Sector.
In some of the western countries such regulatory authorities have been constituted under law to
ensure that NPO’s direct their resources to the beneficiaries to whom it is intended. In India other
than Section 25 Companies which are governed by the provisions of the Companies Act 1956,
there are no separate statutes that govern such bodies nationwide. NPO’s are governed by the
statutes of the state in which they are constituted. Whereas in Maharastra and Gujarat NPO’s are
monitored by the Charity Commissioners of the respective states under the provisions of the
Public Trust Acts, in the other states of the country, an NPO incorporated under the Indian Trust
Act is not monitored separately by statute. However NPO’s incorporated under the Societies
Registration Act are expected to complying with the statutes in terms of filing of annual returns
etc.

It is therefore essential that for purposes of administrative discipline NPO’s subject themselves
to a stringent schedule of compliance such that they are able to carry out their activities without
having any shadow of doubt cast on their credibility at any time from any source

Monitoring Legislature

The two major statutes that monitor the performance and the activities of any NPO are the
Income Tax Act 1961 and the Foreign Contribution [Regulation] Act 1976.

The Income Tax Act 1961

The Income Tax Act 1961 has several exemptions for NPO’s which can be grouped as under
 Organisational Exemptions
 Donor Rebates

37
  Exemptions for Tax deductions

 Organisational exemptions

Exemptions have been granted based on objectives of the NPO’s as Scientific Research
Associations, Educational Institutions, Medical Institutions, General Charitable Institutions, and
Public Religious Institutions. These exemptions are embodied in section 10 of the Act. These are
normally granted for specified periods of time which could vary from 1 to 3 years. These
exemptions are subsequently renewable. However in all these cases it must be mentioned that
one of the prequalification would be the fact that all these NPO’s are registered under Section
12A/ 12 AA of the Act claiming exemption under Section 11 of the Act.

These provision require that the accounts of the institution are audited in the event of the income
of the NPO exceeding Rs.50,000/- annually and that audit reports are submitted in the specified
form along with the return of income that is to be filed with the concerned officer.

It is also to be understood that NPO’s opting for this route are statutorily required to expend 85%
of their income for the objectives set out to be entitled for such exemptions and in case surpluses
do occur and they need to be carried forward, it should be with due and proper intimation to the
concerned officer.

 Donor Rebates

NPO’s are eligible for several donor rebates which could help them in raising resources from
philanthropists and institutions.

Under Section 80G of the Income Tax Act 1961 – as an approved charitable institution under
section 10 and section 80 G. The donations made are exempt at prescribed rates

Exemption under Section 35 of the Act - if the NPO is recognised by the Government under
these provisions as either an educational institution, a R&D body, or for that matter if a particular
program or project of an NPO is approved by the government contributions made by commercial
institutions will be considered as business expenses .

 Exemptions for Tax deductions

The NPO can seek exemptions from the applicability of the provisions of Act pertaining to Tax
deduction at Source for income earned by the NPO by way on interest on deposits, rent etc.
However the NPO will be expected to comply with the law with respect to payments made by
them to third parties as part of meeting its objectives.

The Foreign Contribution [Regulation] Act 1976

The FCRA as it is popularly known is a statute that has been enacted to regulate the inflow and
application of foreign funds in the NPO sector primararily. It is an absolute must that for an
NPO to receive funds from an International Source it needs to be registered under the provisions

38
of this law. Ay institution so registered will need to comply with requirements pertaining to
maintenance of books of accounts and records as also reporting to the Government periodically
as to the funds received and its utilisation during specified periods of time.

A separate bank account has to be designated for this purpose and funds from this designated
account cannot be under normal circumstances routed through separate / different bank account.
The receipts and payments record of the foreign receipts have to be maintained separately as also
a record of assets created out of such funds.

Users of financial reports and their information needs

Many users are interested in the information provided in the financial statements of NPO’s .
Among present and potential users are members , tax prayers , contributors , grantors, suppliers,
creditors, employees, managers, directors and trustees, service beneficiaries, financial analysts
and advisors, economists, governments and their agencies (such as taxing authorities, regulatory
authorities, and legislators ), the financial press and reporting agencies, and general public. The
following groups are especially interested in information provided by the financial reporting of
an NPO:

Resource providers: Resource providers include those who are directly

Compensated for providing resources-supplies and employees - and those who are not directly
and proportionately compensated – members, contributors and donors .

Beneficiaries : Beneficiaries are those who used and benefit from the services rendered by the
NPO.

Governing bodies: Governing bodies are responsible for setting policies and for overseeing and
appraising managers of NPO’s. Governing bodies include box of trustees and other bodies with
similar responsibilities. These bodies are responsible for reviewing the organization ‘s
conformance with various laws, restrictions, guide lines, or other items of a similar nature. In
some NPO’s , governing bodies are elected representatives of a constituency that is largely
comprised of resource providers. In other NPO’s governing bodies may be self – perpetuating
through election their successors .

Managers: Managers of an organization are responsible for carrying out the policy mandates of
governing bodies and the managing the day-today operations of organizations. Manager could
include certain elected officials ;managing executives appointed by governing bodies, such as
executives directors; and staff, such as fund- raising and programme directors.

Financial reporting objectives

Financial reporting by NPO’s is intended to satisfy the information needs of a variety of users. It
is, there fore , important to identify such users and the purposes for which they require the
financial information.

39
Financial reporting is a broad term that includes general purpose financial statements as well as
other types of financial reports. It should be recognized that while general purpose financial
statements ( herein after referred to as ‘financial statements’ ) are a principal means of
information for most uses, they may not (due to their very nature ) provide all the information
that some of the users may need . While developing a frame work for financial reporting by
NPO’s , it would, there fore, be necessary to identify what information can best be
communicated through such reports.

It is generally believed that the financial statements that reflect a true and fair view of the state of
affairs as reflected by the Balance Sheet and the results of the operations (Activities) of the NPO
as reflected by the Income and Expenditure Account would normally meet the requirements of
various users.

Double Entry Book Keeping

Book keeping

The main aim of every business is to earn profit. Profit is nothing but the excess of Income over
expenditure. So to calculate profit the businessman must record the incomes and expenditure
related to his business, this recording of business transactions is called book-keeping. Thus book
keeping means recording, classifying and summarizing business transaction systematically so
that the businessman may be able to know his profit or loss during a specified period.

Double entry system

The system of accounting is based on Dual Aspect concept. According to this concept, every
financial transaction involves a two – fold aspect – (a) receiving of a benefit (b) giving of that
benefit, for example if a business has acquired an asset, it must have given up some other asset
such as cash. Thus a giver necessarily implies a receiver and a receiver necessarily implies a
giver. There must be a double entry to have a complete record of each business transaction, an
entry being made in the giving account and an entry of the same amount in the receiving account.
The receiving account is termed as debtor and the given account is called creditor. Thus every
debit must have a corresponding credit and vice – versa and upon this dual aspect has been raised
the whole superstructure of double entry system of accounting. Thus we may define the Double
Entry System as that system which recognizes and records both the aspects of transaction”. This
system has been proved to be systemic and has been found of great use for recording the
financial affairs of all institutions requiring use of money.

Main accounting terms

Before going ahead you must have knowledge of accounting terminology, which is, used daily in
business world.

Capital - It is the amount invested by the proprietor in the firm. For the business it is liability
towards the owner.
Capital = Assets – Liabilities.

40
Asset – Assets are things of value owned. In other words anything, which will enable the firm to
get cash or a benefit in future, is called asset. Money owing by debtors, stock, cash, furniture,
machinery, buildings etc. are a few examples of assets.

Liability – It is the amount, which the firm owes to outsiders

Liability = Assets – Capital

Revenue – It is the amount, which is added to the capital as a result of operation. Receipts from
sale of goods, rental income etc. are a few examples of revenue.

Expense – It is the amount spent in order to produce and sell the goods and services which
produce the revenue. Some examples of expenses are salaries, wages, rent, etc.
Income = Revenue – Expense.

Purchase – Cash and Credit purchases of goods.

Sale – Cash and Credit sales of goods.

Stock – Stock includes goods lying unsold on a particular date.

Debtors – A person who owes money to the firm.

Creditor – A person to whom the money owes by the firm.

Proprietor – The person who makes the investment and bears all the risks connected with the
business is called the proprietor.

Drawings – It is the amount of the money or the value of goods which the proprietor takes for his
domestic or personal use.

Transaction – exchange of goods or services for cash e.g. purchase of a machinery etc.

Advantages of Double Entry System

 Scientific system – This system is the only scientific system of recording business
transactions as compared to other systems of book keeping. It helps to attain the
objectives of accounting.

 This system maintains a complete record of all business transactions.

 By the use of this system the accuracy of the accounting work can be established through
device of Trial Balance.

 This system helps in assessment of profit earned or loss suffered by the business though
preparation of Profit and Loss A/C.

41
  The financial position of the firm can be ascertained at the end of each period, through
preparation of Balance Sheet.

 This system permits accounts to be kept in as much detail as necessary and therefore
affords significant information for purposes of control etc.

 Comparative study is possible – results of one year may be compared with those of
previous year and reasons for the change may be ascertained.

 Helps management for decision-making. The management may be able to obtain good
information for its work, especially for decision making.

 No scope for fraud – The firm is saved from frauds and misappropriations since full
information about all assets and liabilities will be available.

 It is because of these advantages that the system has been used extensively in all
countries.

Accounts and Chart of Accounts

You'll post each entry according to the category, or account, of the transaction. Each account will
be associated with an account number. These numbers are referenced when developing your
financial statements (more on those later). You'll refer to a chart of accounts which will tell you
what account number to use when you post an entry. You can design your own chart of accounts,
including coming up with your own account numbers. The chart usually have five areas,
including assets, liabilities, net assets (or fund balances), revenues, and expenses. The account
numbers you come up with should depend on the particular kinds of revenues and expenses you
expect to have most frequently.

However, nonprofits have to report account activity according to the classifications functional(or
programs) and natural (or supporting). Program transactions are those directly related to
providing services to clients, members, etc. Supporting transactions are those in common to all
programs, for example, general management costs, etc. It's not always easy to know which
transactions belong to which category!

Chart of accounts

Internal systems including the billing, order entry, inventory, logistics and financial systems
provide critical support at various stages for the larger business process of product delivery.
These various business processes are integrated together by an ERP package which allows the
sharing of common information across what previously used to be distinct functional areas.

One of the key decisions in an ERP implementation is deciding the chart of accounts, and at least
in theory, companies often have two alternatives available to them:

1. Use the existing chart of accounts structure as was being used in the previous system being

42
migrated from, or

2. Start from scratch, i.e. review and completely overhaul the chart of accounts and implement
the changed structure.

In practice however, the choice to use the same chart of accounts as before is not even an option
as most new ERP systems use concepts and mechanisms for chart of accounts in a manner
completely different from the legacy systems being migrated from. There is also the question of
how relevant the new chart of accounts still is, and an ERP implementation is often the much
awaited opportunity for many companies to bring the chart of accounts in line with the realities
of business that have changed over the years. Attempting to modify the existing chart of accounts
into the new system also have the significant disadvantage of carrying forward the historical
baggage, such as redundant data elements, inconsistent use etc.

Adopting a new chart of accounts therefore often becomes a necessity when implementing a new
system or overhauling an existing one. Due to the sophistication and complexity of available
ERP systems which allow for complex relationships and data validation rules etc., charts of
accounts decisions are rarely simple and go far beyond a simple listing of nominal accounts.

From a strategic viewpoint, a chart of accounts is only one of the elements of an organisation’s
common business data model. The common business data model should provide information that
the enterprise’s managers need to run the business. The elements that constitute the common data
model will be located across the different manual and automated systems that run the internal
processes. One of these key elements is the chart of accounts that captures, revolving around the
general ledger, all financial information.

There are two dimensions along which decisions need to be taken while considering a new chart
of accounts:

1. The structure of the chart of accounts: This includes decisions on issues such as the number
and names of fields in the chart of accounts, order in which they appear, relationships &
dependencies between them, validation requirements, length, numeric or alpha or both,
uppercase or lowercase or both, etc.

2. The contents, or the 'values' stored per the structure: These would be the actual codes that
represent various nominal accounts, cost centres etc. per the structure decided above.

The following factors must be considered when deciding the structure and contents of the new
chart of accounts:

Dimensions, or granularity along which information is to be captured

The ultimate determinants of the chart of accounts will be the degree of detail that the company
wishes to build into its transactional systems. While it is easy to be tempted and include all
possible elements by which business data can be sliced, each extra element imposes an overhead
on the data capture process besides increasing the possibility of data inaccuracy. Generally, the

43
level of detail incorporated in the chart of accounts would bear an inverse relationship to the
accuracy of the data captured using such a framework. The more are the data elements, the more
is the possibility of erroneous classification. The right balance needs to be struck between the
demands of analysts for better classified data and the internal capability of the transactional
processes to capture such detail.

Depending upon the nature of their business, companies are interested in analysing their data by
dimensions such as product, activity, cost centre, geography, legal entity, project, and
occasionally customer as well. The specification for the chart of accounts must include these data
elements that will form a part of the new structure, together with an explanation of the rules to be
followed for recording information therein, and the means to be used to capture such information
by data element.

Organisational capability to capture information

There is always a risk of being tempted to include all possible business dimensions in a chart of
accounts structure, and the risk is that elements that are difficult to capture will fall into disuse
over a period of time. Since the decisions on the structure of the charts of accounts are often
practically irreversible in an ERP context, it is important to consider the ability of the
organisation to be able to capture correctly the various components of the chart of accounts.

When determining elements to be included in the chart of accounts, the exact details of the
mechanism that will enable the capture of that information must be identified. While customer
wise classification of revenue may be easy to achieve as this may be interfaced from the billing
module, being able to split costs correctly and consistently over a period of time by cost centre
and business process/activity may not be so easy.

Skills are a real issue here – qualified people having the skill and judgment required to code
correctly, say a cost, are unlikely to be willing to do this work when it has to be identified by cost
centre, geography, activity, product, customer, project & legal entity. And the people that are
willing to do this, i.e. the bookkeeping clerks, simply may not have these skills. The design must
have a humane aspect with consideration for the persons who will be responsible for the coding.

Provision for legal entities

The chart of accounts must recognise the real world that the business operates in, and the entities
through which its operations are carried out. It must meet the basic requirement that it should
provide all financial information by ‘real’ legal entities (as opposed to organisational
classifications of business units, divisions etc.) – no matter how irrelevant this information might
appear to pure management accountants. No matter how we organise our business, the reality of
legal entities never goes away, and building these into a chart of accounts helps create the
deepest level of detail that can potentially make the chart of accounts future resistant, if not
future proof. It also allows us to capture information along the dimension by which we hold
ourselves out to the real world, and is extremely useful for tax and statutory reporting. The ‘real’
legal entity must be a balancing segment, i.e. it should be possible to extract a self balancing
chart of accounts by legal entity. This may not be a requirement for a business division where

44
balance sheet elements may not be shared and separate information may be required only for the
profit and loss accounts.

Statutory accounting requirements

In addition to the information required to be captured for the purposes of the organisation’s own
consumption, the chart of accounts must provide fields or segments where information necessary
for compliance purposes can be held. The use of these would be dictated by local statutory
compliance requirements and should not include any value which is used for say, local
management reporting. If the local management requires any reporting, that should be catered for
by the standard chart of accounts. If there is something in these local segments or fields, it should
only be there to flag local fiscal requirements, and ideally the standard chart of accounts should
be comprehensive enough to provide for all local management information needs.

Ease of maintenance

Typically, intelligent use of dependencies, cross-field data validation and use of relationships
where some codes ‘roll-up’ to another contribute a great deal to maintainability. These
relationships will have to be thoughtfully reviewed in light of the capabilities of the ERP system.

The design of the chart of accounts must look beyond the current quarter end or the current year
end. While not recommending an exercise to predict the future, another factor to consider here
would be to have a vision for the finance function that goes at least 2-4 years in the future.

Process enabler – ABC, balanced scorecard, project accounting etc

The design and structure of the chart of accounts should be mindful of the emerging processes
and changing views of the business that are expected to take centre-stage for the company’s
managers in the coming months and years. The strategic direction and the view of the company
towards activity based costing, product profitability, balanced scorecard & key financial
indicators, project based management, decision support and cost modeling, data warehousing etc
are things which would be unwise to ignore as being considerations when deciding a new chart
of accounts.

The cost of complexity

carries costs which may not be readily quantifiable or even identifiable immediately. Extra time
required for data entry, more time spent reclassifying, more complexity built into system
administration, more time required for maintaining data validation rules, training time for new
accounting staff, time spent on classification arguments etc. are all issues that comprise the cost
of complexity. Often, though not always, this cost of complexity will present a reasoning
countering the flexibility argument. The balance needs to be carefully struck.

How much complexity can the company really handle well is a question that must be answered
objectively uninfluenced by top management expectations, and if this analysis reveals an

45
expectation gap it should be bridged by an education process and not by imposing a clunky and
unwieldy chart of accounts

46
Meetings and Minutes
writing

Chapter - 03

47
 Meeting
Defination
In a meeting, two or more people come together for the purpose of discussing a (usually)
predetermined topic, often in a formalized setting.
In addition to coming together physically (in real life, face to face), communication lines and
equipment can also be set up to have a discussion between people at different locations, e.g. a
conference call or an e-meeting.
In organisations, meetings are an important vehicle for human communication. They are so
common and pervasive in organizations, however, that many take them for granted and forget
that, unless properly planned and executed, meetings can be a terrible waste of precious
resources.
Because of their importance, a career in professional meeting planning has emerged in recent
years. In addition, the field of Meeting Facilitation has formalized with an internationally-
recognized "Certified Professional Facilitator" designation through the International Association
of Facilitators (IAF)

Running Effective Meetings

Meetings are wonderful tools for generating ideas, expanding on thoughts and managing group
activity. But this face-to-face contact with team members and colleagues can easily fail without
adequate preparation and leadership

The Importance of Preparation

To ensure everyone involved has the opportunity to provide their input, start your meeting off on
the right foot by designating a meeting time that allows all participants the time needed to
adequately prepare.

Once a meeting time and place has been chosen, make yourself available for questions that may
arise as participants prepare for the meeting. If you are the meeting leader, make a meeting
agenda, complete with detailed notes

In these notes, outline the goal and proposed structure of the meeting, and share this with the
participants. This will allow all involved to prepare and to come to the meeting ready to work
together to meet the goals at hand.

The success of the meeting depends largely on the skills displayed by the meeting leader. To
ensure the meeting is successful, the leader should:
 Issue an agenda
 Start the discussion and encourage active participation
 Work to keep the meeting at a comfortable pace – not moving too fast or too slow
 Summarize the discussion and the recommendations at the end of each logical section
 Ensure all participants receive minutes promptly
While these tips will help ensure your meeting is productive and well-received, there are other
important areas that need to be touched on to make sure your meeting and negotiation skills are
fine-tuned.

48
 Managing a Meeting
Choosing the right participants is key to the success of any meeting. Make sure all participants
can contribute and choose good decision-makers and problem-solvers. Try to keep the number of
participants to a maximum of 12, preferably fewer. Make sure the people with the necessary
information for the items listed in the meeting agenda are the ones that are invited.

Tip:
Stop for a minute to consider the hourly cost to your organization of the people attending your
meeting. You'll realise that calling a meeting is expensive, so it's important to ensure that every
person attending and every minute of your meeting adds value. So don't invite people who won't
participate but will simply report back to their boss or team (sending a copy of the minutes will
be a more effective way of achieving this). Equally, don't use meetings to tell people things that
could be communicated just as effectively by email or memo

If you are the leader, work diligently to ensure everyone’s thoughts and ideas are heard by
guiding the meeting so that there is a free flow of debate with no individual dominating and no
extensive discussions between two people. As time dwindles for each item on the distributed
agenda, you may find it useful to stop the discussion, then quickly summarize the debate on that
agenda item and move on the next item on the agenda.

When an agenda item is resolved or action is agreed upon, make it clear who in the meeting will
be responsible for this. In an effort to bypass confusion and misunderstandings, summarize the
action to be taken and include this in the meeting’s minutes

Time Keeping
Meetings are notorious for eating up people's time. Here are some ways of ensuring that time is
not wasted in meetings:
 Start on time.
 Don't recap what you've covered if someone comes in late: doing so sends the message
that it is OK to be late for meetings, and it wastes everyone else's valuable time.
 State a finish time for the meeting and don't over-run.
 To help stick to the stated finish time, arrange your agenda in order of importance so that
if you have to omit or rush items at the end to make the finish time, you don't omit or skimp on
important items.
 Finish the meeting before the stated finish time if you have achieved everything you need
to.

Issuing Minutes
Minutes record the decisions of the meeting and the actions agreed. They provide a record of the
meeting and, importantly, they provide a review document for use at the next meeting so that
progress can be measured - this makes them a useful disciplining technique as individuals'
performance and non-performance of agreed actions is given high visibility.

The style of the minutes issued depends on the circumstances - in situations of critical
importance and where the record is important, then you may need to take detailed minutes.

49
Where this is not the case, then minutes can be simple lists of decisions made and of actions to
be taken (with the responsible person identified). Generally, they should be as short as possible
as long as all key information is shown - this makes them quick and easy to prepare and digest.
It is always impressive if the leader of a meeting issues minutes within 24 hours of the end of the
meeting - it's even better if they are issued on the same day.

Writing the minutes

1. Introduction
Governing Bodies are statutory bodies made up of volunteers from different sectors of the
community. Minutes of meetings must be recorded, entered into a book or file and signed by the
Chairperson.
Minutes are a method of recording discussions and decisions in a clear and concise form. They
should be written using plain language. Topics covered in these guidelines include:-_
 Taking notes
 Using abbreviations
 Different styles of minute writing
 Presentation and layout
 Language and grammar
 Making sense of your notes
 Numbering minutes
 How to turn everyday comments into appropriate minutes
 Useful phrases to remember
 Making sure the minutes are concise
 Minuting special meetings
 Example of minute writing

During the meeting

a) Taking notes
Everybody has a different way of taking notes and there are a number of methods to choose
from. Here are just a few:-
 write down everything as it is said under headings just in case it is important –but you would
have to be a very fast writer!
 write a few lines for each heading which will to remind you of the discussion
 use bullet points describing the conversation on a grid for each topic being.
 discussed with columns for the subject, any comments and the decision reached.

b) Using Abbreviations
You may find it useful to use abbreviations in your notes. This will enable you to accurately
record decisions as long as you can understand what the abbreviation means! There is nothing
worse than looking at your notes the next day and trying to remember what it all means as this
defeats the whole object of using abbreviations. Here is some that to use when taking notes:-

50
 Abbreviation Meaning
Mins Minutes
MA Matters arising
Cttee Committee
Ch Chair
VCh Vice Chair
HT Head teacher
OK Approved
GB Governing Body
Govs Governors
WO Welsh Office
LEA Education Department
PSD Property Services
Conc Concern
Cap Capital
Avail Available
Prep Prepare/preparation
P Pupils/parents
T Teachers/staff
Imp Important
Doc Document
Stat Statutory

3. Presentation

Different styles of minute writing

Minutes should be written using business-like language in a clear, concise and simple way
without using pompous or stuffy vocabulary. They should be typed using a formal layout with
headings for each item. Normal everyday phrases should be substituted for a more appropriate
business-like language. Further information on how to do this is discussed later in these
guidelines. Minutes should not be written in an informal or casual way.

Presentation and Layout

Each organisation has its own preferred style of presentation for minutes and although there is no
set layout prescribed in any legislation it is advisable that minutes should contain some basic
information as follows:-

 Minutes should state what meeting it is and when and where it was held
 A list should be included of those governors present, anybody else present and who
apologized.
 The chair of governors is usually listed first in the list those present and should be identified
as the chairperson.
 Headings should be used for each topic especially with matters arising and committee
reports.
 Minutes are always written in the past tense and should be clear and concise.

51
 Always use capital letters for, Chairperson, Vice Chairperson, Governor, Governing Body
and the name of the organization.
 Resolutions should be in bold type and indented so they stand out.

c) Language and Grammar

Attention should be paid to spelling, grammar and punctuation throughout the minutes. It is
especially important to use commas and apostrophes correctly. Be careful not to repeat the same
phrases too many times and to begin paragraphs differently. This will prevent the minutes from
becoming repetitive and boring.
Remember to use active or specific and not passive or vague phrases. This ensures that sentences
are more concise and clear. It is important to know who agreed or said what for future reference.

4. Writing the minutes

Making sense of those notes

Well now we come to those notes you took at the meeting. In an ideal world minutes should be
written as soon as possible after the meeting although this is not always feasible. You may find it
helpful to read through your notes to refresh your memory before attempting to write anything
and perhaps highlight any comments or issues that you feel should be included in the minutes.
This will help to sort out any unnecessary notes you have and give you an idea of what you need
to write.
Remember that minutes are written in the past tense. So it is important to transfer any comments
or decisions into the past tense. The only exception to this rule is governing body resolutions
which are written in the present tense. This is because they have not happened yet but will in the
future.

Numbering minutes
Things can get complicated when there are subsections of subsections of paragraphs so it is best
to number using this guide.
The main minutes are numbered consecutively. Matters arising are numbered using roman
numerals and any further subsections use letters.

Making sure the minutes are concise

Minutes should be clear, concise and accurate. A basic guide is to

 Briefly introduce the subject
 Summaries any major points raised
 Record the decision reached.

52
Rules Regarding
Investment of Funds

Chapter - 04

53
 Budgets

You'll have a an operating budget (or annual budget), which shows planned revenue and
expenses, usually for the coming year. Budget amounts are usually divided into major categories,
for example, salaries, benefits, computer equipment, office supplies, etc. You might also have
cash budgets, which depicts the cash you expect to receive and pay over the near term, for
example a month. You also might have capital budgets, which depict expenses to obtain or
develop, and operate or maintain major pieces of equipment, for example, buildings,
automobiles, computers, furniture, etc. Development of the budgets is usually driven by the chief
executive. In the case of corporations, the board treasurer can take a strong role in developing
and presenting the budget to the rest of the board. The board is responsible to authorize the
yearly budgets.

You should develop a program budget, that is, a budget for each major service you provide to
clients. For example, a transportation program, a child-care program. Many nonprofits have more
than one program. It's critical to plan and track financial costs for each program. As much as
possible, nonprofits should strive to minimize overhead or administrative costs, that is, costs to
support the resources that support the entire organization and all programs, rather than just one
program. Examples of administrative costs are rent for a building, office supplies, labor costs for
personnel who support the central office or more than one program, insurance, etc. It's wise to
develop a program budget that allocates indirect costs to programs. There are several methods to
do this.

Usually, each month (during trial balancing -- more on that later), you'll update your budget
report to include actual revenue and expenses. Then you can compare your planned revenue and
expenses to your actual revenue and expenses. This will give you a good idea whether your
operating according to plan or not, including where you need to cut down on expenses and build
up on revenue

The Framework that Regulates the Budget: What Do You Need to Know?

The following summarizes some of the key questions on the overall budget preparation
framework.

What is the budget timetable?

How are budgeting powers distributed between the executive and legislative branches?

 legislative power to propose spending

 power of amendment
 one vote--global vote on spending
 executive powers to limit spending below appropriations

How are budgeting powers distributed within the executive?

 number of agencies involved; who does what?

54
 agenda for setting budget negotiations; how is this determined?
 structure of negotiations--who has veto power?

How are activities funded?

 revenue accounts
 borrowed resources
 extrabudgetary mechanisms
 multiple funds
 contingency funds
 special funds

Any legislative limits on:

 expenditure?
 deficit?
 borrowing?
 carryover of spending authority to next year?

Any earmarking?

 special or hypothecated funds

 constitutional or legal commitments on specific public services (education, health)

Petty Cash

You'll have a lot of small, recurring expenses that you'll need to pay right away, for example, to
buy a computer power cord, stamps, etc. You'll probably work from a petty cash fund. You
might establish this fund by writing a check to your organization, and noting on the check that it
goes to the "petty cash" fund. You'll withdraw from the fund by filling out a voucher that
describes who took the money, how much, for what and on what date.

Trial Balances

Usually, once a month, you'll do trial balancing. Often, the board treasurer can help with this
activity. This activity usually starts by totaling the entries from the journal(s) into a general
ledger. (As your business grows, you may use other types of ledgers, too, for example for
equipment, payroll, etc.) When using double-entry accounting, you'll add up totals on both sides
of the ledger to make sure that total debits equal total credits.

You'll make sure that the individual postings and totals are correct by comparing each to its
accompanying documentation. For example, your recording of cash disbursements will be
compared to your bank's monthly checking statement that indicates what checks you wrote over
the month. Your recording of cash disbursements will also be compared to accompanying
invoices and other forms of billing to your organization, to verify there was a need for each
check that was written to pay bills.

55
Internal Controls

You will have various forms of internal controls to ensure the business is following its plans,
minimize the likelihood of mistakes, avoid employee thefts, etc. There are a wide range of
internal controls. For example, you'll be careful about whom you hire. You might have
authorization lists about who can access which areas of the building, types of information, etc.
As mentioned above, you'll carry over totals to various financial reports, including your budget,
to see if your financial activities are according to plan or not. To minimize employee theft, the
business's mail will be opened by one person who logs in each check that is received. This
person will be someone other than the person who deposits the checks to the bank.
Disbursements of large amounts

Another form of financial control is an audit. An audit is a comprehensive analysis, by a

professional from outside the organization, of your financial management procedures and
activities. The auditor produces a report, with a variety of supplements, that indicates how well
your organization is managing its resources. Some nonprofits are required to have audits. It's
usually good practice to have an audit, whether you're required to or not.

Financial Statements

In order to know how your organization is doing, you'll do some ongoing financial planning and
analysis. In this planning and analysis, you'll likely use your bookkeeping information to produce
various financial statements, including a cash flow statement, statement of activities and a
statement of financial position.

Your cash flow statement depicts changes in your cash during the year. Your statement of
activities (known as the income statement before) depicts the changes in your assets over the
past year. This statement is particularly useful to tell you if you are operating with extra money
or at a deficit. This gives you a pretty good impression of your rate of revenues and spending. It
signals areas of concern, as well. Your statement of financial position depicts the overall value
of your organization at a given time (usually at the end of the year), including by reporting your
total assets, subtracting your total liabilities and reporting the resulting net assets. Net assets are
reported in terms of unrestricted, temporarily restricted and permanently restricted assets.

Funders often want to see the statement of financial position.

Financial Analysis

By themselves, numbers usually don't mean much. But when you compare them to certain other
numbers, you can learn a lot about how your organization is doing. For example, you can
compare the planned expenses depicted on your budget to your actual expenses in order to see if
your spending is on track.

Another form of comparison is by using ratios. A ratio is a comparison made by mathematically

dividing one number by the other. For example, nonprofits are expected to keep administrative

56
costs down in order to make more money available for programs. Dividing a program's expenses
by your total expenses indicates the amount of administrative overhead to run your program.
The interpretation of results from various types of comparisons depends on the nature of the
nonprofit. For example, an association might expect to spend far less on administrative overhead
than would a social services agency during their first year..

Financial Reporting

The types and frequency of reports depend on the nature of the nonprofit and its situation. For
example, if the nonprofit is in some sort of crisis, the board may require frequent reports.
Your board should require regular financial reports at each board meeting. When your
organization is just getting started, the chief executive will prepare and present financial reports
to the board. However, as the organization develops, a board treasurer will likely take a strong
role in helping the chief executive to present financial information to the board. The finance
committee, led by the board treasurer, ensures that financial reports are complete and helps
present them to other members of the board.

The board may require a statement of financial position and statement of activities at each
meeting. They also may request descriptions of finances for each program or of affordability for
upcoming, major initiatives. They may request information prior to filing taxes. They will
certainly need to see any results from financial audits

What are the basic steps in budget preparation systems?

In principle, the basic steps in a standard budget preparation system comprise the following:
The first step in budget preparation should be the determination of a macroeconomic framework
for the budget year (and ideally at least the next two years). The macroeconomic projections,
prepared by a macroeconomic unit in the ministry of finance or elsewhere, should be agreed with
the minister of finance. This allows the budget department within the ministry of finance to
determine the global level of expenditure that can be afforded without adverse macroeconomic
implications, given expected revenues and the level of deficit that can be safely financed. In a
few countries, there are fiscal rules in place that may limit total spending or recurrent spending.

The second step should be the allocation of this global total among line ministries, leaving room
for reserves (a separate planning and a contingency reserve as explained below) to be managed
by the ministry of finance.

The next step should be for the budget department to prepare a budget circular to give
instructions to line ministries, with the indicative aggregate spending ceiling for each ministry,
on how to prepare their estimates in a way that will be consistent with macro objectives. This
circular will include information on the economic assumptions to be adopted on wage levels, the
exchange rate and price levels (and preferably differentiated price levels for different economic
categories of goods and services).

57
Step four is the submission of bids by line ministries to the budget department. Once received
there needs to be an effective "challenge" capacity within the budget department to test the
costing of existing and any new policy proposals.

The next step comprises the negotiations, usually at official and then bilateral or collective
ministerial level, leading finally to agreement.

Finally, step six is Cabinet endorsement of the proposals for inclusion in the budget that will go
to parliament.

While the principles should be broadly familiar in most ministries of finance (and would even be
considered out of date in those industrial countries with the most advanced budgeting systems),
actual practices may fall a long way short. For example, in too many countries the budget
department does not prepare a macro framework, nor even a first outline of the budget, let alone
indicative ceilings by line ministry, before sending out the budget circular. In such cases, the
circular is an administrative mechanism that initiates the budget-making process, usually
providing a timetable for budget submissions--that is, estimates of financial requirements by line
item and by line ministry or spending agency--but not giving them much guidance in the
preparation of their estimates or overall spending limits. Thus, when preparing their budget
requests, the ministries often merely add percentages, guided by an inflation projection in the
circular, to their previous year's budget. With this "bottom-up approach," line ministries are able
to overstate their needs, exerting upward pressure on overall spending.

Early in the preparation stage, that is before the budget circular is issued, those advising on the
preparation of the budget should ask:

Is the budget based on an aggregate level of general or central government expenditure, in cash
terms, that is consistent with the macro framework, and any fiscal rules in place?

Does the budget circular to the line ministries provide adequate guidance on preparing budget
estimates? Does it include a guideline or limit for each line ministry on this total spending?

Are there suitable reserves? Ideally, within the aggregate total there should be a planning reserve
(not allocated in guidelines given to each line ministry), so the ministry of finance can assign
extra resources later during budget negotiations for the most urgent priorities, without breaching
the macroeconomic constraint. Moreover, after all final line ministry allocations have been
made, there should still be a contingency reserve within the aggregate that will be held and
administered by the ministry of finance to meet genuine contingency spending during the budget
year.

What are the typical weaknesses of budget preparation systems?

There are often weaknesses in budget preparation systems: their nature, scale, and significance
need to be understood, both to assess the value of the data produced and, where there are
separate projections to be made by an IMF team or other external advisers, to accommodate such
weaknesses. Eight common problem areas can be identified:

58
 The central government budget is not really unified. It is a dual-budget system with
separate recurrent and capital or "development" budgets that may be based on
inconsistent macroeconomic assumptions, budget classifications, or accounting rules.
Each budget may be compiled by a different ministry--for example, the ministry of
finance for recurrent expenditures and a planning ministry for capital or "development"
expenditures.

 The macroeconomic constraint is not explicitly taken into account in the budget process,
or the economic assumptions underlying the estimated costs of expenditure programs are
weak or erroneous.

 Projections for the outturn of the previous and current years' budgets are not prepared, or
the experience to date is not analyzed, so that budget preparation becomes a simple
incremental exercise based on the previous year's (often erroneous) budget estimates.

 Satisfactory procedures do not exist for review of expenditure policies and program
prioritization. There is no multiyear planning.

 Extra budgetary funds are used to divert spending to one or more "off-budget" accounts.

 Quasi-fiscal expenditures, contingent liabilities, etc., are not taken into account.

 Appropriations-in-aid are used inappropriately.

 In many cases, remedying the problems encountered in the above areas would require
extensive reforms, so there may be limited scope to make an immediate impact. Even in
the short term, however, those reviewing budget preparation can play an important role in
sensitizing policymakers to certain weaknesses and so assist in reorienting the system

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Dissolving an Non
profit Organisation

Chapter – 07

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Dissolution of a Society

Dissolution of a society may become necessary for various reasons such as where the objects for
which the society was formed have been fulfilled or the purpose for which society was formed
have become irrelevant or that members are otherwise willing to dissolve the society for
utilization of the assets of the society for some other or better use. The procedure for dissolving a
society is laid down in section 13 of the principal Act 1860. The members of the society have to
determine by a 3/5th majority that it shall be dissolved. Here they have two options to decide.
 Either it may be dissolved forthwith
 A time may be agreed upon when the society shall stand dissolved.

The members, therefore, should pass a resolution at the special general meeting of the society
convened for this purpose where they should transact the following business:
 Decide by 3/5th majority that the society should be dissolved.
 Decide whether it will be dissolved forthwith or at a later time agreed upon by them.
 Decide steps that shall be necessary for disposal of property and settlement of the claims and
liabilities of the society, according to the rules of the society.
 Authorise the governing body to dispose of the property of the society and settle claims and
other liabilities.

Settlement of Disputes

In the event of dispute arising among the members of the governing body or the members of the
society in regard to disposal of property, the governing body or its members or members of the
society may refer the dispute for adjustment of the affairs of the society, to the principal Court to
Original Civil Jurisdiction of the District in which the chief building of the society is situated.
The court shall make such orders in the matter as it may deem requisite.

Consent of the Government

Whenever any Government is a member of the society or contributes to the funds of the society
or is otherwise interested in a society registered under this Act, the society has to obtain consent
of the Government before its dissolution. The consent is given by the Government of the State in
which the society was registered.

Dissolution of the Societies by the Registrar

The principal Act does not provide for dissolution of society by the Registrar. Various states of
course have made provisions in the principal Act for dissolution of the societies by the Registrar
under various circumstances such as:
 Where the office of the society has ceased to be the State of registration,
 Where the society has shifted its office from the state of registration to some other state,
 Where the activities of the society are considered subversive,
 Where it is carrying on unlawful activity
 Where it has allowed any unlawful activity to be carried on within any premises under its
control,

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 Where the registered society has contravened any of the provisions of the Act or the rules
made there under,
 Where the registered society is insolvent or must necessarily become so,
 Where the business of such registered society is conducted fraudulently or not in accordance
with the bye-laws or the objects specified in the Memorandum of the society,
 Where the society contravened any provision of any other law for the time being in force,
 Where the number of the members of the society is reduced below 7,
 Where the society has ceased to function for more than three years,
 Where the society is unable to pay its debts or meet its liability,
 Where the registration of the society has been cancelled on the ground that its activities or
proposed activities have been or will be opposed to public policy.

The Registrar normally inquires or investigates into the activities of the society and calls upon
the society to show cause why it should not be dissolved. The Registrar move the court for
making an order for dissolution of the society, if the cause shown by the society is not
satisfactory.

Dissolution by Court

A principal Act does not provide for dissolution of society by the courts. The courts may order
dissolution of societies on the application made by 10% of its members or by the Registrar in
some States. The court may order dissolution if it is satisfied that any of the following
circumstances exist:
 If there is any contravention by the society of the provisions of this Act,
 If the number of the members is less than 7,
 If the society is unable to pay its debts or meet its liabilities
 If the society has ceased to function for more than three years,
 If it is proper that the society should be dissolved,
 If the registration of the society has been cancelled on the ground that its activities or
proposed activities have been or will be opposed to the public policy.

Dissolution for Constituting Public Nuisance

Court may dissolve a society on an application made by District Magistrate showing that the
activities of the society constitute a public nuisance or are otherwise opposed to public policy.
The disposal of property of the society, its claim and liabilities and any other adjustment of its
affairs shall be made in the manner as the court may direct.

Dissolution by Government

The Government may be written order containing detailed reasons, dissolve a society. Before
passing such order opportunity has to be given to the society for representing against such order.

Order of withdrawal of registration without notice or opportunity to the society to have a say in
the matter is opposed to rule of natural justice.

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Consequences of Dissolution
Dissolution of the societies results in cessation of their activities. There arises a need to settle the
liabilities of the dissolved society as also to suitably dispose of its surplus assets. The surplus
assets may be given to another society or the Government. Upon dissolution steps should be
taken by the society for disposal of the property of the society and settlement of its claims and
liabilities in terms of the existing rules of the society. If rules do not indicate the manner of the
disposal of its properties, the governing body may decide about the disposal of properties in
suitable manner itself with appropriate majority vote or in the manner directed by the general
body or the court.

Members Not To Receive Profit

The principal Act provide that if any property remains surplus after the satisfaction of all debts
and liabilities of the society, same cannot be paid to or distributed among the members of the
society or any of them. The members by 3/5th majority may determine for giving the surplus
properties to some other society. In event of any dispute among the members regarding disposal
of surplus property the matter may be referred to the Principal Court of Civil Jurisdiction for
disposal.

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