NGOs: roles, legal forms and accountability

Detail

What an NGO is

• Non-governmental organisation (NGO): a body formed by citizens that does not work for profit and is not part of the government.
• "Non-profit" means it may earn money, but it cannot share that money with its members as profit. All income goes back into its work.

• "Non-state" means the government does not create it or run it, even if the government gives it money.

• NGOs are one part of civil society. Civil society is the space between the family, the market and the state, where citizens act together on their own. It also includes pressure groups, the media and community groups (Class 9, "Democracy").

• Informal voluntary action comes first. In Class 6 ("Family and Community"), Kamal Parmar runs free classes for children in her community. An NGO is the organised and registered form of the same impulse.

Roles of NGOs

Role	What it means	Example
Service delivery	They run schools, clinics and livelihood projects where the state's reach is weak	health, education and skill programmes
Advocacy and litigation	They push for rights through campaigns and court cases, including PILs (public interest litigation, where any person can go to court for people who cannot)	rights-based campaigns
Watchdog	They check what the government does and expose failures	social audits, monitoring of schemes
Innovation and pilots	They test new ideas, which the state later expands	SEWA (organising women in informal work); ASER surveys that test children's learning and hold the school system to account
Partner in schemes	Ministries use them to deliver government programmes	grant-in-aid projects

• Scale (2015): the CBI told the Supreme Court there were about 31 lakh registered societies and trusts. Only a few of them filed their accounts.
• Funding: CSR (corporate social responsibility) spending under s.135, Companies Act 2013 is now a major source of money. Under this law, large companies must spend part of their profits on social causes, often through NGOs.

Legal forms: three ways to register an NGO

Form	Law	Key features
Society	Societies Registration Act 1860 (a central law; many states have their own versions)	Needs 7 or more persons, a memorandum (a document stating its aims) and a governing body. Easy to form. Its members can control it.
Public charitable trust	State laws, such as the Maharashtra (formerly Bombay) Public Trusts Act 1950	Trustees (people trusted to manage the property) hold property for public religious or charitable use. Control stays with the trustees and is hard to change.
Section 8 company	s.8, Companies Act 2013 (earlier s.25, Companies Act 1956)	Licensed by the Centre. Pays no dividends (no share of profit to members). Income is used only for its objects. Has stronger governance and disclosure rules.

• Trap: a private trust (for named people, such as family members) comes under the Indian Trusts Act 1882. A public charitable trust comes under state laws.

Tax status

• Old law (Income-tax Act 1961):
• Registration under s.12AB makes the NGO's own income tax-free.

• Approval under s.80G lets donors deduct part of their donation from their taxable income.

• New law: the Income-tax Act 2025 came into force on 1 April 2026. It has a separate part on "registered non-profit organisations" [6].

• A body formed in India for charitable or public religious purposes can apply to the Principal Commissioner or Commissioner of Income-tax for registration [6].
• Voluntary contributions it receives count as its income. The income must be spent on the purposes for which it is registered [6].
• Only 85% of a donation it makes to another registered non-profit counts as money spent on its own purposes [6].
• A body working for "any other object of general public utility" can do commercial activity only if:
  • the activity is part of actually doing that work;
  • receipts from it are not more than 20% of total receipts; and
  • it keeps separate accounts [6].
• Using income for private religious purposes or for aims outside its objects is listed as a violation [6].

The government's links with NGOs

• CAPART (1986): the Council for Advancement of People's Action and Rural Technology. It gave money to rural voluntary groups for rural development.
• National Policy on the Voluntary Sector (Planning Commission, 2007): it set three aims:
• respect the autonomy (freedom to act on their own) of NGOs;
• create an enabling environment (rules that help them work); and

• build partnership between the state and NGOs.

• NGO-Darpan (now NPO Darpan): a portal run by the Voluntary Action Cell of NITI Aayog [2].

• Each non-profit gets a unique Darpan ID [2].
• The ID is mandatory for any NPO that seeks grants from Union ministries or departments [2].
• It is also needed to register or renew under FCRA and to seek 80G exemption [2].
• Under the Prevention of Money-laundering (Maintenance of Records) Amendment Rules, 2023, banks must record the Darpan ID before an NGO can open or operate an account [2].
• Over 1 lakh NGOs have taken the ID [2].

Foreign funding: FCRA

• FCRA (Foreign Contribution (Regulation) Act) 2010 came into force on 1 May 2011. It controls how NGOs receive and use money from abroad [4].
• FCRA Amendment 2020: the main changes are below [3].

Point	Before 2020	After the 2020 Amendment
Spending on administration	Up to 50% of foreign money	Up to 20%; at least 80% must go to the actual work [3]
Where the money arrives	Any bank chosen by the NGO	Only in an "FCRA account" at a notified SBI branch in New Delhi; another account in any scheduled bank may be used to keep or spend it [3]
Passing money on	Allowed with permission	Sub-granting (passing foreign money to another association) is banned [3]
Identity	—	Aadhaar (or passport/OCI card for foreigners) of office-bearers is compulsory [3]

Accountability

• RTI (Right to Information Act 2005):
• D.A.V. College Trust and Management Society v. Director of Public Instructions (Civil Appeal 9828 of 2005, decided 17 September 2019) [5]: NGOs substantially financed by the government, directly or indirectly, are "public authorities" under RTI. So citizens can ask them for information.

• Thalappalam Service Co-operative Bank v. State of Kerala (2013): cooperative societies are not public authorities just because the state regulates them. They count only if the state controls them deeply or substantially finances them.

• Lokpal and Lokayuktas Act 2013, s.14(1)(g)–(h): the Lokpal (an anti-corruption ombudsman) can inquire into office-bearers of two kinds of bodies:

• bodies that get government aid above a notified limit; and

• bodies that get foreign contributions above ₹10 lakh a year.

• Supreme Court, 2017: in a PIL about misuse of CAPART grants, the Court ordered:

• audits of NGOs that got grants;
• an accreditation framework (a system to check and rate NGOs before funding them); and
• recovery of misused money, including through criminal and civil action.

The debate

• The state's view: NGOs must be transparent about their money. A 2014 Intelligence Bureau report claimed that foreign-funded NGO activism against development projects cut GDP growth by 2–3%.
• Critics' view: tighter FCRA rules and cancelled licences mean "shrinking civic space". This means less freedom for citizens to organise, protest and criticise the government.
• Academic critique, "NGO-isation": people's movements turn into funded, professional NGOs. These NGOs then become less political and answer to donors more than to people.

Prelims Hooks

• Societies Registration Act 1860 → at least 7 persons + memorandum + governing body.
• Section 8 company → Companies Act 2013 (earlier s.25 of the 1956 Act). It is licensed by the Centre and pays no dividends.
• Private trust → Indian Trusts Act 1882. Public charitable trust → state laws (for example, Maharashtra Public Trusts Act 1950). This is a common trap.
• CSR → s.135, Companies Act 2013.
• NGO/NPO Darpan → run by NITI Aayog (Voluntary Action Cell), not the Ministry of Home Affairs. The Darpan ID is needed for central grants, FCRA registration and 80G.
• FCRA Amendment 2020 → administrative spending cap cut from 50% to 20%; FCRA account at SBI, New Delhi; sub-granting banned.
• D.A.V. College Trust (2019) → NGOs substantially financed by the government are "public authorities" under RTI. Thalappalam (2013) → cooperatives are not public authorities by default.
• Lokpal Act 2013, s.14 → covers office-bearers of bodies getting foreign contributions above ₹10 lakh a year.
• CAPART → 1986. National Policy on the Voluntary Sector → 2007, Planning Commission.
• Income-tax Act 2025 → in force from 1 April 2026. It has a separate part on "registered non-profit organisations".

Mains Points

• Accountability vs autonomy. Darpan IDs, FCRA limits, RTI coverage under D.A.V. and the Lokpal's reach make NGOs more transparent. But the same tools can be used to choke critics. A balanced answer can call for clear, time-bound rules and reasons for cancelling licences. It can also call for appeal to an independent body, not only to the executive.
• The 2020 FCRA changes hit small grassroots NGOs hardest. The ban on sub-granting cuts the funding chain from large NGOs to small local ones. A single SBI New Delhi account is hard to use for NGOs in remote areas. The 20% cap squeezes staff and research costs. The government replies that these rules stop money being diverted and protect national interest.
• The NGO as partner of the state. NGOs pilot ideas such as SEWA and ASER, deliver schemes and now receive CSR funds. The 2007 National Policy's model of autonomy and partnership is still sound. But there are about 31 lakh bodies (2015) and few file accounts. So an accreditation framework (as the Supreme Court ordered in 2017), plus self-regulation, is needed to keep trust.
• The "NGO-isation" critique. Funded NGOs may replace mass movements and make politics into projects. Pressure groups and people's movements (Class 10, "Political Parties") remain needed for real democratic participation.