What Are Non-Profit Organizations and How Do They Work

A non-profit organisation (NPO) aims at working for the betterment of a society for any given cause, without generating any profit out of it. These organizations are used commonly for advocacy, trusts, charity, religious groups, environmental groups and cooperatives. The NPOs mostly have volunteers to work for those organizations, however, there are many NPOs that have paid staff as well in the management positions. There are no such owners of the NPOs who are to receive the surplus profits. And surplus that is left after the operating expenses are accomplished, is used for bringing about the future goals rather than apportioning it into the members of the organizations. There are certain conditions and rules established by the government agencies that the NPOs must abide by in order to qualify as a tax-exempt and government-recognized organization.

There is often a confusion between the terms NPOs and NGOs (Non-governmental organizations). The NGOs have no correlation with the government or do not require to abide by the governing council but only depend on the government for funds.

Donations

The NPOs mostly rely on the external sources such as donations for funding. There are three substantial elements to consider such as accountability, scrupulous accounting and transparency to successfully continue the operations and activities. Any misconduct or mismanagement in the funds can lead to a massive loss in terms of both private and public sources. The funds act as the lifeblood of the NPOs that make their mission of helping those in need possible. Donating to an NPO does not always mean money, it can be anything that holds value for life such as clothing, services, cars, medication and so on.

A donor, be it an individual, firm or a company who is also a taxpayer is eligible to claim the deduction under the section 80g of the Income Tax. But, the deduction can only be claimed if the mode of contribution has been money be it via cash, cheque or draft. There are certain cases where the deduction cannot be claimed by the donor such as, if the amount of donation exceeds Rs.10,000, if the contribution has been through clothes, food materials, medicines or services etc.

However, from the financial year of 2017-18 onwards, a donation that exceeds the amount of cash Rs.2.000 is not eligible to claim the deduction. Hence, a donor who wants to contribute above Rs.2,000 has to make it through a different mode other than in cash. Donations that are eligible for deduction under the section 80g are up to either 50% or 100%.

All donations are not entitled to deductions under the section 80g, contributions made only to the prescribed funds qualify for the deduction.

Donating to charities is a necessary act of compassion and kindness especially in a time where crime, violence, poverty and hostility is very common. The world needs more of love and compassion, and through the generous act of giving, we can contribute all that we are capable of. Today, there are millions of people who donate to the NGOs in India for the cause they believe in.

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