Financial Management

Tool Kit

      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


Formation of a Non Profit Organisation and Alternative Forms of Organisaton

Chapter – 01



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].


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 6

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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


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


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 9

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. 2. 3. 4. 5. To protect the interests of large number of shareholders, as there exists separation of ownership from management in a company. To safeguard the interests of creditors. To help the development of companies in India on healthy lines, because corporate sector constitutes a very important segment of the economy. To help the attainment of the ultimate ends of the social and economic policy of the Government. 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


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. 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 10


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.


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.


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 SubRegistrar 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,


(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.


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.


Is the registration of an agreement to transfer a flat necessary after the registration of a cooperative 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


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.


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.


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


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. 1. 2. Income Tax Act Taxes in India are of two types, Direct Tax and Indirect Tax. 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.


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


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 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

On or before 15 September On or before 15 December On of before 15 March

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.


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 1877 1886 1918 1860 Introduced for the first time for a period of five years to cover the 1857 mutiny expenses. It was abolished in 1873 1877 The tax system was revived as a result of the Great Famine of 1876 1886 Introduced as Act II of 1886. It laid down the basic scheme of income tax that continues till the present day 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 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 The Act came into force from 1 April 1962, it extended to the whole of India 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,


1961 1997



fewer slabs, higher exceptions, etc 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

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


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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


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-cooperation 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


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

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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 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


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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,


 a) b)   

a) b) c) d)    

a foreign company within the meaning of section 591 of the Companies Act, 1956 and also includes a company which is a subsidiary of a foreign company, and 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: Government of foreign country or territory, Citizens of a foreign country or territory, corporations incorporated in a foreign country r territory, 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.

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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:

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a) b)

c) d) e)

such an association should register itself with Central Government in accordance with rules made under this Act; and 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 the amount of foreign contribution, the source of foreign contribution, and 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.


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


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   a) b)  a) b)  a) Eligible category An association with a definite cultural, economic, educational, religious or social programmed Types of permission Registration under Section 6(1)(a); and, Prior permission under Section 6 (I A) Application form For grant of registration in form FC-8; and, For grant of prior permission in form FC-IA. Essential requirements 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) 1. 2. 3. 4. 5. 6. Documents Remember to enclose copies of the following documents with your application:Certified copy of registration certificate or Trust deed, as the case may be; Details of activities during the last three years; Copies of audited statement of accounts for the past three years (Asset and Liabilities, Receipt and Payment, Income and Expenditure) Commitment letter from foreign donor specifying the amount of foreign contribution (only with prior permission application); Copy of project for which foreign contribution was solicited/is being offered (only with prior permission application); 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 Chartered accountants/banks


(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.


Basic Financial, Accounting and Regulatory Requirement, Records and Principles Chapter – 02


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


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


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 categoriesConstituting 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

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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


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.


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.


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.

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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


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


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


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


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


Meetings and Minutes writing

Chapter - 03


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 internationallyrecognized "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.

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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.

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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:-


Abbreviation Mins MA Cttee Ch VCh HT OK GB Govs WO LEA PSD Conc Cap Avail Prep P T Imp Doc Stat 3. Presentation

Meaning Minutes Matters arising Committee Chair Vice Chair Head teacher Approved Governing Body Governors Welsh Office Education Department Property Services Concern Capital Available Prepare/preparation Pupils/parents Teachers/staff Important Document Statutory

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.


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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.


Rules Regarding Investment of Funds Chapter - 04


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?


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agenda for setting budget negotiations; how is this determined? structure of negotiations--who has veto power? How are activities funded?

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revenue accounts borrowed resources extrabudgetary mechanisms multiple funds contingency funds special funds Any legislative limits on:

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expenditure? deficit? borrowing? carryover of spending authority to next year? Any earmarking?

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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


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).


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:


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


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, 61

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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.


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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