Trust vs. Society vs. Section 8 Company

How to Choose the Right NGO Structure?
Selecting the best legal structure depends on various factors:
1. Purpose & Activities: If your NGO focuses on a specific charitable purpose, a Trust may be suitable. If you need flexibility for broader goals, a Society is better. For structured service-oriented NGOs that require formal fundraising, a Section 8 Company is the best choice.
2. Control & Governance: Trusts provide centralized control, societies operate democratically, and Section 8 Companies follow a corporate governance model.
3. Compliance Requirements: Trusts have minimal compliance, societies require moderate paperwork, while Section 8 Companies face the highest regulatory requirements.
4. Credibility & Funding: If your NGO plans to raise significant funds, a Section 8 Company has the strongest legal standing and attracts more donors.
5. Dissolution Process: Trusts are difficult to dissolve, while societies and Section 8 Companies offer a more structured winding-up process.
Important Factors to Consider
1. Tax Benefits: All three structures—Trusts, Societies, and Section 8 Companies—can qualify for tax exemptions. However, the specific benefits depend on compliance with government regulations. It’s always best to consult a tax expert to ensure your NGO maximizes its tax-saving potential.
2. Other Tax Advantages: Depending on your NGO’s activities and income sources, additional tax exemptions may be available under different sections of the Income Tax Act.

Understanding Tax Benefits and Registration for NGOs in India
When setting up a charitable organization in India, it’s important to understand the tax benefits associated with Trusts, Societies, and Section 8 Companies. Proper registration ensures legal recognition and allows NGOs to claim tax exemptions, helping them retain more funds for their mission.

Tax Benefits for Public Charitable Trusts
Income Tax Exemption
Section 11: Income generated from properties used for charitable purposes is tax-exempt.
Section 12AA: NGOs registered under this section get complete tax exemption on their total income. However, they must ensure:
• 85% of their income is spent on charitable activities in the same financial year.
• Only 5% of the income is allocated for administrative expenses.
Tax Benefits for Donors
Section 80G: Donations made to a registered Public Charitable Trust qualify for a 50% tax deduction, encouraging more people and businesses to contribute.
Tax Benefits for Registered Societies
Income Tax Exemption
Section 11: Any income earned from property used for charitable purposes is tax-exempt.
Section 12AA: Just like trusts, societies can register under this section to get full income tax exemption, provided they meet the required conditions.
Tax Deductions for Donors
Section 80G: Donors who contribute to a Registered Society (registered under Section 12AA) can claim a 50% deduction on their donated amount.

Tax Benefits for Section 8 Companies
Income Tax Exemption
Section 11: Similar to trusts and societies, a Section 8 Company can claim tax exemption on income earned from property held for charitable purposes.
Section 12A: NGOs registered under this section receive complete tax exemption on their total income. Unlike Section 12AA, there is no minimum spending requirement for charitable activities.
Tax Deductions for Donors
Section 80G: Donations made to a Section 8 Company (registered under Section 12A) qualify for a 50% tax deduction, encouraging more financial contributions.
Registration Process for Tax Exemption
Section 12AA Registration (For Trusts and Societies)
Filing Form 10A: Submit an online application using Form 10A on the Income Tax Department’s portal. This form includes details about your NGO’s purpose, activities, financial history, and registration information.
Required Documents: Attach supporting documents such as:
1. A copy of the Trust Deed or Society’s Registration Certificate
2. Audited financial statements for the past three years (if applicable)
3. Details of charitable activities and their impact
4. Proof of how donations are utilized for charitable purposes
Approval Process: The Income Tax Department will review your application. They may request additional details. If satisfied, they will issue a registration order, granting tax exemption under Section 12AA.
💡 Important: Section 12AA registration is valid for five years and must be renewed before expiry.

Section 12A Registration (For Section 8 Companies)
Filing Form 10A: Just like Trusts and Societies, Section 8 Companies must submit Form 10A online.
Required Documents: Attach supporting documents such as:
1. A copy of the Certificate of Incorporation (COI)
2. Audited financial statements for the past three years
3. Details of charitable activities and their impact
Approval Process: The Income Tax Department will review the application and request clarifications if needed. Upon approval, the company will receive a registration order, granting tax exemption under Section 12A.

Additional Considerations
✅ Dissolution: Trusts can be harder to dissolve, while Societies and Section 8 Companies have simpler dissolution processes.
✅ Compliance Requirements: To maintain full tax exemption, NGOs must regularly comply with Section 12AA or 12A guidelines.
✅ Conditions for Tax Benefits: Each exemption has specific rules. Consulting a tax professional ensures compliance and maximizes benefits.
✅ Other Tax Benefits: Based on activities and income sources, NGOs may qualify for additional tax exemptions under the Income Tax Act.
Choosing the Right Legal Structure for Your NGO
Selecting the best legal structure for your charitable organization in India depends on key factors like governance, flexibility, compliance costs, and overall feasibility. Below is a simple breakdown of the three main options:
Public Charitable Trust
• Minimum Members: At least two people required.
• Governance: Managed by a Board of Trustees.
• Flexibility: Hard to modify objectives or dissolve once established.
• Compliance Costs: Low.
• Best for: Specific charitable purposes where control over funds is not a priority.
Registered Society
• Minimum Members: Requires seven or more members.
• Governance: Managed by an elected committee.
• Flexibility: Easier to modify objectives or wind up compared to trusts.
• Compliance Costs: Medium.
• Best for: Organizations needing more flexibility, but with a risk of leadership changes.
Section 8 Company
• Minimum Members: At least two members are required.
• Governance: Managed by a Board of Directors.
• Flexibility: Can engage in a wide range of activities and prevent hostile takeovers.
• Compliance Costs: High.
• Best for: Organizations that need credibility, strong governance, and better fundraising opportunities.

Which One Should You Choose?
• If you want simple registration and low compliance costs, go for a Trust.
• If you need more flexibility and democratic governance, a Society is a better option.
• If your priority is credibility, fundraising, and structured governance, a Section 8 Company is the ideal choice, though it involves higher compliance.
Conclusion
Choosing the right legal structure is crucial for your NGO’s success. Whether you opt for a Trust, Society, or Section 8 Company, NGO registration plays a vital role in determining your compliance, tax benefits, and operational flexibility. Carefully evaluate your goals, operational needs, and resources before deciding. Seeking advice from legal and financial experts can help ensure your nonprofit grows in the right direction and achieves its mission effectively in India.

Why Choose E Accountax Manager?
E Accountax Manager simplifies NGO registration by guiding you through Trusts, Societies, and Section 8 Companies. We ensure compliance, transparency, and the best legal structure for your mission. With expert support, hassle-free processes, and tailored advice, we help you choose the right path for sustainable growth and impact in India. Book your appointment today for expert guidance.