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POPULATION FOUNDATION OF INDIA
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
FUNDAMENTALS OF
ACCOUNTING
A MANUAL FOR NGOs
Population Foundation of India
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POPULATION FOUNDATION OF INDIA
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
Guidance
Kumudha Aruldas
Sankara Rama Iyer Ramaseshan
Seethapathi Vijayakumar
Sharmila Neogi
Contributors
Chintakindi Surya Narayana Murty
Sanjit Nayak
Ananth Narayanan Ramanathan
Sanjay Kumar Das
Jayant Kumar Bag
Archana Choudhary
Matish Kumar
Arun Kumar
Sudhir Kumar
Assistance
Jolly Jose
Prema Ramesh
Veena Gopal
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POPULATION FOUNDATION OF INDIA
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
FOREWORD
The Population Foundation of India is the Regional Resource Centre
(RRC) for Bihar and Chhattisgarh to provide technical support to Non-
government Organisations (NGOs) and Community based organisations in
management of Reproductive and Child Health (RCH) programme. One of
the key areas of technical support provided by RRC is capacity building of
NGOs in financial management to improve professional competence through
greater accountability, compliance and authenticity.
This manual is an effort on the part of the RRC in compiling various
financial compliances necessary for voluntary organisations. The manual
provides details of basics of accounting, provisions of Income Tax Act and
Foreign Contribution and Regulation Act.
We hope that the manual will prove to be a valuable source of information
and a handy guide for NGOs in order to enable them to prudently undertake
and incorporate financial management systems for effective programme
implementation.
We sincerely thank the NGO Division of the Ministry of Health and
Family Welfare, Government of India for its continued guidance and support
towards preparing this document.
New Delhi
March 2007
Amulya Ratna Nanda
Executive Director
Population Foundation of India
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
INTRODUCTION
The non-profit voluntary sector
organisations are formed on the spirit of
service, participation, dialogue and civil
society's role in building just and sustainable
societies. Regulations are most effective only
when they aim to strengthen the organisations
and not merely to control. Therefore,
understanding the ethos, realities and spirit of
the non-profit organisations is essential for
any debate and discussion on their accounting
and accountability. Guidelines and documents
for better accountability and for building
strong financial systems help build credibility
and effective programme implementation.
NEED FOR ACCOUNTING
Accounting has rightly been termed as the
language of Business. The basic function of
language is to serve as a means of
communication. Accounting equally serves
this function. It communicates the results of
business operations to various parties, who
have some stake in the business, viz., the
owners, lenders, creditors, investors, workers,
the government and other agencies. Though
accounting is generally associated with
business, all the above stakeholders make use
of it. The need for accounting is important
for a businessperson and one expects to know:
(i) what he owns,
(ii) what he owes,
(iii) whether he has earned profit or suffered
loss because of running a business,
(iv) what his financial position is i.e., whether
he will be able to meet his obligations in
the near future.
Every firm or institution should always be
careful and vigilant about its financial position.
That is why every business tries to ascertain
how much profit it has earned during the
financial year, how much capital it has at the
end of each year and how that capital stands
invested. The accounting came into being with
the purpose of providing such information.
WHAT IS ACCOUNTING?
Accounting is an ancient art, as old as
money itself, even though the art must have
been in its basic form in the beginning.
Chanakya in India clearly indicates in his
treatise, the Arthashastra, the existence and the
need for proper accounting and audit. The
Indian system of accounting is as scientific
and systematic as the one developed in the
West. However, the modern system of
accounting, as we know, owes its origin to Luca
Pacioli, who lived in Italy in the 15th century.
The art of accounting is practiced for long but
it is only recently, in the late thirties, that the
study of the theory of accounting has been
taken up seriously. In this task, the American
Institute of Certified Public Accountants
(AICPA) has played a notable part.
In 1941, the Institute defined accounting
as "The art of recording, classifying and
summarizing in a significant manner and in
terms of money, transactions and events
which are, in part, at least, of a financial
character, and interpreting the results
thereof."
In 1966, the American Accounting
Association (AAA) defined accounting as,
"The process of identifying, measuring and
communicating economic information to
permit informed judgments and decisions by
users of the information."
In 1970, the Accounting Principles Board
(APB) of AICPA outlined the functions of
accounting as, "To provide quantitative
information primarily of financial nature,
about economic entities, that is needed to be
useful in making economic decisions."
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POPULATION FOUNDATION OF INDIA
The analysis of the definitions brings out
the following functions of accounting:
• Financial Transactions: Accounting
records only those transactions and events,
which are of financial character. If a
transaction has no financial character, it
cannot be measured in terms of money and
thus should not be recorded. For example,
transactions which do not have a commercial
or financial character like a quarrel of the
Production Manager or Sales Manager does
not affect the earnings of the business but
does not have a financial character and
therefore it will not be recorded.
• Recording: Accounting is an art of
recording business transactions in the
books of accounts in a systematic manner.
Recording is generally done in the book
called "Journal". This book is further sub-
divided into various subsidiary books such
as Cash Book (for recording cash
transactions), Bank Book (for recording
all banking transcations). Purchase Day
Book (for recording credit purchase of
goods), Sales Day Book (for credit sales
of goods), Purchase Returns Book (for
recording return of goods purchased), etc.
• Classifying: Classifying is the process of
grouping of transactions or entries of
similar nature at one place. This is usually
done by opening accounts in a book called
"Ledger". It contains all the accounts of
the business. Similar transactions relating
to a particular account for a given period
are brought together and are recorded at
one place in a Ledger. For example, there
may be separate ledger account heads for
Traveling Expenses, Printing & Stationery,
Advertising, etc.
• Summarizing: Summarizing is the art of
presenting the classified data for analysis
and interpretation, which is understandable
and helps the management and other
interested parties. This involves
preparation of final accounts that include
Trial Balance, Trading and Profit & Loss
Account and Balance Sheet.
• Analysis and Interpretation: For the
process of analysis, the accounting
records must be prepared in such a way
as to be able to portray the significance
of all transactions and events individually
and collectively. The data is also used for
preparing plans and framing the policies
for executing such plans.
• Communicating: The accounting
information after being subjected to
analysis and interpretation has to be
communicated to the intending user in the
desired form. This is done through
preparation and distribution of accounting
reports such as accounting ratios, graphs,
diagrams and fund flow statements.
To understand this definition, an example of
a typical middle class family is enumerated below.
A husband and wife earn Rs. 10,000 each per
month. Their monthly expenditure includes
children school fee of Rs. 1000/-, house rent of
Rs. 3000/-, electricity of Rs. 2000/-, ration of Rs.
1000/- and travel & other monthly expenses of
Rs. 1000/-. The "recording" of the transactions
is done by entering these monetary transactions.
The transactions are "classified" into income and
expenditure, in order to know the surplus or deficit
from the transactions. It is understood that in
this example total income of the family is Rs.
20,000 i.e. husband's and wife's salary for a month.
The total monthly expenditure is Rs. 8,000, hence
their surplus per month is Rs. 12,000. To
"Summarize" the results for a year, multiply the
result per month by 12 i.e. total surpluses for the
year is Rs. 1,44,000 (12,000 x 12). This surplus
could be utilized in many ways. For example, incur
non-monthly expenses like cloths, furniture,
jewellery, gifts, etc. Suppose, after meeting all the
expenses, if there is a surplus of Rs. 75,000 per
annum, that could be saved for future.
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
Now the results are "interpreted" for
proper planning, which will result in the
answers to the questions like:
(a) Whether the amount saved per year i.e.
Rs. 75,000 is enough to meet the long-
term forecasted expenditure (after 10 or
15 years) or not? For example, purchase
of land, commencement of a business,
marriage of daughter.
(b) How much one can borrow?
It is an accepted phenomenon that a lender
will give only the amount that can be easily
repaid within a year or two. In case there is an
existing loan, say of Rs. 5,00,000/-, the lender
will not give further loan unless his/her
previous borrowings are repaid. Hence,
knowingly or unknowingly, the interpretations
are of the same way as that of the organization.
BRANCHES OF ACCOUNTING
Accounting
Financial
Cost Management
Accounting Accounting Accounting
Financial Accounting
The accounting system that is concerned
only with the financial state of affairs and
financial results of operations is called
Financial Accounting. It includes
ascertainment of profit earned or loss incurred
and position of the business at the end of the
accounting period and provides financial
information required by the management and
other parties interested in such information.
Cost Accounting
Cost Accounting involves estimating cost
in advance and its detailed analysis. The main
purpose of cost accounting has been to
analyze the expenditure involved to ascertain
the cost of various products manufactured
and to fix their prices.
Management Accounting
The Chartered Institute of Management
Accountants, London defined Management
Accounting as, "The application of
professional information in such a way as to
assist the management in the formation of
policies and in the planning and control of
the operations of the undertaking."
Management Accounting covers wide areas
such as cost accounting, budgetary control,
inventory control, statistical methods, internal
audit, etc. It is the accounting for the
management that provides necessary
information to the management for
discharging its functions.
PARTIES INTERESTED
IN ACCOUNTING
INFORMATION
Owners: The induction of capital into the
business always involves risk. In view of the
risk assumed, the shareholders or the owners
are interested in knowing the amount of profit
earned or loss suffered by the business and
the status of assets and liabilities of the
business.
Investors: A person who is contemplating
an investment in the business will like to know
about its profitability and its financial position.
A financial statement provides necessary
information required by the investors.
Creditors: Creditors are those who extend
credit facilities against the supplies and
services to the company. Before granting
credit, creditors would like to satisfy
themselves of the credit worthiness of the
business. The financial statements help them
in assessing the financial well-being of the
business.
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Lenders: In modern business, the banks
and other financial institutions also contribute
funds in the form of secured and unsecured
Government: The Government makes use
of financial statements for compiling national
accounts besides ascertaining the tax liability
Investors
Government
Owners
Users of
Accounting
Information
Employees or
Workers
Lenders
Creditors
loans to the business besides the funds being
provided by the owners. The lenders give
money only after satisfying themselves about
the repaying capacity i.e. solvency of the
business concern.
Employees or Workers: The employees
are interested in the financial statements of
the company because of various profit-sharing
and bonus schemes. In the present day world,
in addition to these monetary aspects,
employees also take pride in representing at
the Board, as representative of partners, in
providing useful suggestions to the
management in conducting the business.
of the business, and deposit of statutory dues.
It is also useful to the Government for tariff
fixation, direct and indirect tax rate fixation,
analyzing the Gross National Products (GNP),
per capita income, etc.
ACCOUNTING TERMINOLOGY
Capital: Capital means the amount that
the proprietor has invested in the firm or can
claim from the firm. For the firm, it is a liability
towards the owner. This Capital is also known
as the Owner’s Equity.
Capital = Assets – Liabilities
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Liabilities: Liabilities are debts, which the
firm owes to its creditors excepting the owners.
Liabilities are amounts owed to creditors.
Liabilities = Assets – Capital
Liabilities are classified as:
(a) Long Term Liabilities: These are
liabilities, which are repayable after a long
term, say after a period of one year.
Examples are long term loans, debentures,
etc.
(b) Current Liabilities: These are liabilities,
which are repayable in the near future.
Examples are bank overdrafts, short-term
loans, bills payable, etc.
Assets: Assets are things of value owned
by the organization. Anything which will
enable the firm to get cash or benifit is an
asset.
Assets can be classified as:
(a) Fixed Assets: Fixed assets are those
assets, which are purchased for operating
the business but not for sale. Examples
are building, machinery, land, etc.
(b) Current Assets: Current assets are
those assets, which are kept for short
term for being converted into cash,
produce or for resale. Examples are bills
receivable, cash and bank balances,
stocks, etc.
Revenue: Revenue means the amount
realized as a result of operations which is added
to capital. "Revenue is an inflow of assets which
results in an increase in the owner's equity".
Examples are rent, income, etc.
Expense: Expense is the amount spent in
order to produce and sell the goods and
services, which results in earning revenue.
"Expenses are the cost for the use of products
or services for the purpose of generating
revenue." Examples are payment of salaries,
wages, rent, conversion charges, etc.
Income = Revenue – Expenditure
Purchase: The term purchase is used only
for the purchase of goods. Goods are those
items, which are purchased for resale or for
producing the finished products for sale.
Goods purchased for cash are called cash
purchases and goods purchased for credit are
called credit purchases.
Sales: This term is used for the sale of
goods only. When goods are sold for cash, they
are cash sales and when sold on credit, they
are called credit sales.
Stock: The term stock includes goods lying
unsold on a particular date or value of
materials meant for production. The stock is
valued based on "cost or market price
whichever is lower".
Debtors: Debtors are persons who owes
money to the firm because of credit sales of
goods.
Creditors: Creditors are persons to whom
the firm owes money.
Loss: Loss means excess of expenditure
over revenue and on which the firm
receives no benefit. (It may be noted that
in general while the expenses are anticipated
but losses are not.)
Drawings: It is the amount of money or
the value of goods, which the owner(s) takes
for his/their domestic or personal use.
Discount allowed: It is the reduction on
prices of goods, which is allowed by the
organization to its customers.
Discount received: It is also the reduction
in prices of goods, but this reflects to the
discount that is allowed by the seller to the
organization.
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ACCOUNTING PRINCIPLES
Accounting principles may be defined as
those rules of action or conduct, which are
adopted by the accountants universally while
recording accounting transactions.
These are classified into two categories:
I. Accounting Concepts or Postulates
(a) The Money Measurement Concept:
Only those transactions are recorded that
can be measured in terms of money.
(b) The Entity Concept: The entity of an
organization is separate from that of the
individuals who operate, thus its accounts
are different from those of the individual,
who manage it.
(c) The Historical Cost Concept: All the
transactions are recorded at the price paid
to acquire it i.e. at its cost. This cost is the
basis for all other subsequent transactions.
(d) The Going Concern Concept: It is
assumed that the organization will exist
for a long time. Transactions are,
therefore, recorded in such a manner that
the benefits likely to accrue in future, from
the money spent now or for the future
consequences of events occurring now,
are also taken into account.
(e) The Dual Aspect Concept: Every
transaction recorded into by the
organization has two aspects, a Debit and
a Credit; every debit must have a
corresponding credit.
(f) The Realization Concept: It is a
fundamental rule in Accounting that
profit is not recognized or recorded to
have been earned till it is realized in cash
or a third party has legally become liable
to pay the amount.
(g) The Accrual Concept: All the
expenditures relating to a specific period
are recorded even if not incurred or paid.
II. Accounting Conventions
(a) Consistency: All the transactions are to
be treated on the same basis from year
to year. In case of any change on the
basis of treatment, the same must be
adequately disclosed in the notes to the
accounts.
(b) Disclosure: Along with other disclosures,
the final accounts should also disclose all
significant accounting policies based on
which accounts have been prepared.
(c) Conservative: Financial statements are
to be drawn-up on a conservative basis,
showing the true position of the
accounts.
(d) Materiality: According to this
convention, the accountant should attach
importance to material details and ignore
insignificant details.
METHODS OF ACCOUNTING
Cash Basis:
In cash basis of accounting, all
transactions, whether of capital or revenue
nature, are recorded only as and when effected.
For example, goods and services purchased/
availed are recorded as assets or expenses at
the time they are paid while revenues, including
grants and donations, are recorded as received,
at the time of actual receipt or transfer of
funds.
Mercantile Basis:
In mercantile system of accounting,
goods and services purchased /availed are
recorded as assets or expenses at the time
the goods are received and services availed
irrespective of the fact that whether actual
payment made by cash is effected by the
organisation or not. Similarly, revenues
including grants are recorded at the time
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when they are earned or become due
irrespective of the fact that whether they
have been actually received or not.
RULES OF DEBIT AND
CREDIT
The transactions in the Journal are
recorded based on the rules of Debit and
Credit. For this purpose, transactions are
categorized into three:
(a) Transactions relating to person,
(b) Transactions relating to properties and
assets, and
(c) Transactions relating to income and
expenses.
The accounts falling under the first,
second and third headings are termed as
Personal Accounts, Real Accounts, and
Nominal Accounts.
Personal Accounts
Personal Accounts include the accounts of
persons (individuals, companies, firms,
societies and trusts) with whom the business
has dealings. The rule is:
Debit – The Receiver
Credit – The Giver
Real Accounts
Real or Property Accounts represent
transactions that deal with materials, things
such as fixed assets, cash, etc. The rule is:
Debit – What comes in
Credit – What goes out
Nominal Accounts
It represents transactions that deal with
expenses and incomes of the organization,
e.g. salaries, wages, rent, discount, etc. The
rule is:
Debit – All expenses and losses
Credit – All gains and incomes
Ledger accounts are categiorized into two
parts. Left-hand side is termed as the Debit
side and right-hand side is termed as the
Credit side. As mentioned, herein before each
transaction has two effects and the accounts
reflect both these effects as debits and credits.
The following rules are obtained for various
items:
Assets: Asset increases when it is debited
(on the left-hand side) and decreases when it
is credited (on the right-hand side), e.g. when
cash is received, cash account is debited and
when it is paid, the cash account is credited.
Liabilities: Increases on the credit side
and decreases on the debit side.
Capital: Increases on the credit side and
decreases on the debit side.
Expenses: Increases on the debit side and
decrease on the credit side.
Incomes or gains: Increases on the credit
side and decreases on the debit side.
ACCOUNTING PERIOD:
Accounting period, as mentioned above,
implies a year from 1st April to 31st March.
It is mandatory on the part of a non-profit
organization to prepare three statements
viz., Receipts and Payments Account,
Income & Expenditure Account and the
Balance Sheet, on yearly basis and get these
audited by Chartered Accountants.
SOURCE DOCUMENTS
Cash Memo: This document results from
cash transactions. When the goods are
purchased or sold for cash, the firm receives
or gives cash memos, which provide details
regarding the cash transactions. A sample of
cash memo is given on next page.
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POPULATION FOUNDATION OF INDIA
No…….
Qty.
CASH MEMO
ABC Helping Center
123-A/1st Floor, P.P. Colony, Patna-13
Dated…………….......
Description
Rate
Rs.
P
Amount
Rs.
P
Total
Invoice or Bill: This document is for
credit transactions. A sale invoice is prepared
to record the details of credit sales. Sale invoice
contains information like description of
goods sold and the total amount of sale.
(Similarly, on credit purchases also, invoices/
bills are received from the seller.)
Receipt: When a firm receives cash cheque
/draft from the customer, it issues a receipt as
a proof of receipt. (Similarly receipts are to
be obtained for payments made by the firm.)
NEGOTIABLE NSTRUMENTS
According to Section 13 of the Negotiable
Instruments Act, "a negotiable instrument
means a promissory note, bill of exchange or
cheque payable either to order or to bearer."
Pay-in-Slip: Pay-in-slip is a form available
at the bank for depositing money in a bank
account. It has a counterfoil, which is returned
to the depositor with signature of the cashier
as receipt.
Promissory Note: According to Section 4
of the Negotiable Instruments Act, "a
promissory note is an instrument in writing
(not being a bank note or a currency note)
containing an unconditional undertaking
signed by the maker, to pay a certain sum
For ABC Helping Center
of money only to, or to the order of, a
certain person, or to the bearer of the
instrument."
Bills of Exchange: Section 5 of the
Negotiable Instruments Act defines a bill of
exchange as follows:
"A bill of exchange is an instrument in
writing containing an unconditional order,
signed by the maker, directing a certain person
to pay a certain sum of money only to, or to
the order of, a certain person or to the bearer
of the instrument."
Cheque: Section 6 of the Negotiable
Instruments Act defines a cheque as follows:
"A cheque is a bill of exchange drawn on
a specified banker and not expressed to be
payable otherwise than on demand." Thus, a
cheque is a bill of exchange with two
distinctive features, namely:
(i) it is always drawn on a bank, and
(ii) it is always payable on demand.
Cheque is a document in writing drawn
upon a specified banker and payable on
demand. The name of the party to whom the
payment is to be made is written after the word
“Pay to”. The cheque has the specified the
amount with the date and signed by the drawer.
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Bankers cheque/Payorder
Bearer cheque
Demand draft
Debit and Credit Notes: A debit note
is raised against a party when goods are
returned to a supplier or when an additional
amount is recoverable from a customer. On
the contrary, a credit note is made out when a
party is to be given a credit for goods returned
by him. When returned goods are received
back from a customer, a proper credit note
must be sent to him.
vouchers. It is mandatory to maintain the
books of accounts on double entry book
keeping system. Double entry system implies
each and every transaction has two aspects.
Both these aspects are represented as 'Debit'
and 'Credit'.
If one account is debited then another
account must be credited by the same amount.
Once the voucher is prepared, the same details
are recorded in a Day Book known as Journal.
A Day Book format of the Journal is
given below:
RECORDING FINANCIAL
TRANSACTIONS: JOURNAL
Date Particulars Ledger Dr.
Cr.
Folio Amount Amount
Transactions as they occur are recorded in
"Vouchers". A voucher is a documentary
evidence in support of a transaction.
1. A piece of substantiating evidence; a
proof
2. A written record of expenditures,
disbursements, or completed transactions
3. A written authorization or certificate,
especially exchangeable for cash or
representing a credit against future
expenditures.
A cash memo showing cash sales and
an invoice showing sale of goods on credit,
the receipt made out by the payee when
cash is paid to him, rent received/paid
telephone bills, electricity bills and deposit
receipt in bank are examples of supporting
to vouchers. These must be preserved for
the audit and as also for a period as per the
statutory requirement.
Only on the basis of the supporting
documents, the accountant analyzes which
accounts are to be debited and which
accounts are to be credited and prepares
(A)
(B)
(............)
The name of account to be debited is
written first and it is written close to the line
marked (A). The word "Dr." is written near
the line marked (A). Then the amount to be
debited is written in the column for Dr.
Amount. In the next line, the name of the
account to be credited is written preceded by
the word "To". This is written a few spaces
away from the line (A). The amount is written
in the extreme right-hand column. There must
be an explanation of the entry (shown under
the bracket) and this is known as "narration".
Narration records facts leading to the entry
and facilitates quick understanding.
Once the Journal is recorded, the Debit
and Credit accounts are posted in respective
ledger accounts. The column for the ledger
folio is meant to record the page numbers
on which various accounts are kept in the
ledger (a book containing accounts). Ledger
accounts are prepared on the basis of Journal.
The total of Debits and Credits should match
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POPULATION FOUNDATION OF INDIA
for every particular transaction (the principal
requirement of double entry system).
There are defined generally accepted
principles and rules to write Journals that we
will learn later. The Journal would appear in
books as:
Date Particulars Ledger Dr.
Cr.
Folio Amount Amount
15 Telephone
Marh A/c
2007 To I.O.B A/c
(9)
(110)
(Being telephone
bill for the month
of Feb 2007,
paid by cheque.)
2145.00
2145.00
Debit denotes:
(a) If a person has received some benefits
against which he has already rendered
some service or will render service in
future. When a person becomes liable to
do something in favour of the firm, the
fact is recorded by debiting that person's
account,
(b) If the values of goods or properties have
increased, and
(c) If the firm has incurred some expenses
like salary or rent or has lost money.
Credit denotes:
(a) If some benefits have been received
from a person, entitling him to claim in
return for the benefit, cash or goods or
service. When a person becomes entitled
to money or money's worth for any
reason, the fact is recorded by crediting
him,
(b) If the value of goods or properties has
diminished, and
(c) If the firm has made a gain in case of
other accounts (e.g. commission).
A Debit balance shows that:
(a) Money owed to the firm; or
(b) The firm owns some property (cash,
goods, furniture, etc.); or
(c) The firm has lost money or has incurred
some expenses.
A Credit balance shows that:
(a) The firm owes money to some person;
or
(b) The firm has given up or sold so much
property; or
(c) The firm has earned an income.
For example, the business receives cash of
Rs. 2500 from Mr. X. Here two different
accounts are involved: one is cash account and
the other is Mr. X. In respect of cash account,
which is a real or property account, the rule is
debit what comes in and credit what goes out.
Whereas in case of Mr. X, who is a personal
account, the rule is "debit the receiver and credit
the giver". Thus, since cash comes in, one should
debit cash account and Mr. X is the giver, Mr. X
should be credited as per the rule of personal
account. The Journal is thus recorded as under:
Cash A/c.
Dr. 2500
To Mr. X's A/c
2500
(Being the amount received from Mr. X)
If the cashier gives Mr. Y a sum of Rs. 1500,
then the Journal appears as below:
Mr. Y's A/c
Dr. 1500
To Cash A/c.
1500
(Being the amount paid to Mr. Y)
Let us analyze another set of transaction. The
accountant is paid a salary for March 2007
amounting to Rs. 3000. The accountant is an
employee and he is entitled for salary. Salary, in
respect of the firm, is an expenditure. Therefore,
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
one should not get confused with the personal
account of the accountant in this case. As far
as the business is concerned, it is a payment
towards an expenditure. Thus, the two accounts,
which are involved, are Salary account and the
Cash or Bank account. Respective rules shall
be applied, viz., rules of nominal account in
respect of expenditure (Salary) and real account
in case of Cash /Bank payment. The Journal
entry would appear as follows:
Salary A/c
Dr. 3000
To Cash A/c
3000
(Being salary paid to the Accountant for the
month of February 2007)
CASH BOOK
The cash book is meant to record all cash
transactions—whatever is their nature.
The cash book is divided into two sides—
(i) the left-hand side, for recording receipts of
cash; and (ii) the right-hand side, for recording
the payments. Each side has two columns—
one to record cash transactions and the other
to record bank transactions—payments into the
bank being entered on the left-hand side and
payments out of bank being entered on the
right-hand side. (The left-hand side is known as
the Debit side and the right-hand side is known
as the Credit side.). A sample format of cash
book is given below:
Sometimes, cash is deposited in the bank
and cash is withdrawn from the bank for use
in office. In the case of cash book with cash
and bank columns, entries both for receipt and
payment will appear in the cash book itself in
appropriate columns. These entries are known
as "contra" entries and are denoted with the
initial 'C'.
PETTY CASH BOOK
The petty cash book is usually maintained
on the basis of Imprest System. According to
this system, the Chief Accountant advances a
fixed amount to the Petty Cashier at the
beginning of the month. The petty cashier
submits the accounts at the end of the month
and the Chief Accountant, after examining
the accounts, gives him a fresh advance
equivalent to the amount spent by him, during
the period. Thus, in the beginning of each
period, the petty cashier has a fixed balance.
The amount so advanced to him is known as
the 'Imprest'.
Dr.
Receipts
Date
Particulars
Cash Book
L.F. Amount Date
Rs. P.
Payments
Particulars
Cr.
L.F. Amount
Rs. P.
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POPULATION FOUNDATION OF INDIA
LEDGER
The book, which contains accounts, is
known as Ledger or General Ledger. Since
final information pertaining to the financial
position of a business emerges only from the
account, the ledger, is also called the 'Principal
Book'. Other books such as the Purchase
Book, Sales Book and Journal Day Book
merely facilitate the preparation of accounts
or the ledger. Hence these books are known
as 'Subsidiary Books' or books of original
entry. The Cash Book has a unique position.
It is also a subsidiary book because cash entries
are first entered here and then other accounts
are prepared. It looks like.......
PREPARATION OF
ACCOUNTS OR POSTING
First of all the opening entry should be
posted as it indicates the balances of assets
and liabilities with which the organization start
a new period. All the closing balances of assets
and liabilities mentioned in the Balance Sheet
will be the opening balances for the current
year. The assets/debit balances of the
previous year are posted to the debit side of
the respective ledger account with the
particulars denoting "To Balance Brought
Forward" or "To Balance B/F", and then the
amount. In case of liabilities/credit balances
and the capital account, the entries are made
Dr.
Date
Particulars
Account as on.....
L.F. Amount Date
Rs. P.
Particulars
Cr.
L.F. Amount
Rs. P.
An alternative form of the above format is as follows:
Account as on ....
Date
Particulars
L.F.
Dr.
Amount (Rs.)
Cr.
Amount (Rs.)
Date implies date of transaction.
In particulars column, details of transactions are written.
L.F. denotes ledger folio reference number.
Dr. Amount implies debit amount.
Cr. Amount implies credit amount.
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
on the credit side of the ledger account with
the particulars as "By Balance B/F". Cash and
bank balances are written in Cash Book and
no separate account is opened.
Posting of the journal entries in ledgers
should always be done in chronological order
of transactions. The entries are required to be
made on a daily basis, in the Cash Book, Bank
Book, Day Book Journal as well as Ledger
accounts. For example, following Journal
Entry, which has to be posted in Ledger:
Furniture A/c
Dr. 5000
To Paul Furnishers A/c
5000
It is obvious that furniture has been
purchased. In this purchase two accounts are
operated (due to dual aspect of each transaction),
i.e. Furniture and M/s. Paul Furnishers. You can
see that the amount for furniture is written on
the Debit side and amount for Paul Furnishers
on the Credit side.
In Furniture Account, the amount will be
written on the Debit side, i.e., the same side as
that of the Journal. In 'Particulars' column of
Debit side, description of the account will be
written as 'To Paul Furnishers A/c'. In the
ledger folio column, the page number of the
credited account, in this case Paul Furnishers
A/c, is written. Similarly, amount for Paul
Furnishers is on the credit side, so in the Ledger
Account of Paul Furnishers, the amount is
written on the credit side. In the 'Particulars'
column on the Credit side, description of the
account head will be written as 'By Furniture
A/c'. In the Ledger Folio, page number of
the Furniture A/c (which is debited) is
written. Following points must be noted for
this entry:
(a) Two accounts are affected, i.e. Furniture
and Paul Furnishers.
(b) In their respective accounts, reference to
each other is mentioned in the Ledger
Folio columns by mentioning page
numbers.
(c) If the amount is written on the Debit
side in the Journal, then the
corresponding account will also have
amount stated on the Debit side, and if
the amount is written in the Credit side
of the Journal, then the corresponding
account will also have the amount stated
in the Credit side.
(d) In 'Particulars' column, references of other
accounts affected is written. While writing
account for debit amount, reference to the
credit amount is shown and vice versa.
(e) In the Debit side, it is customary to start
by writing 'To' and in Credit side by
writing 'By' before the reference is written
in Particulars column.
(f) Hence the Journal serves as the guide for
which account is to be debited and which
is to be credited.
(g) To repeat, amount shown in the Debit
side of the Journal will be written in the
same side of the account i.e. Debit side.
Similarly, amount shown in the Credit side
of Journal will be written in the same side,
i.e. Credit side of the account. Particulars
and Ledger Folio column show the
reference of opposite account affected.
The picture of account of furniture and
cash due to this transaction would be like:
Account: Furniture
Page 21
Date Particulars LF
Dr.
Cr.
Amount Amount
(Rs)
(Rs)
May To Paul 11
5000
12 Furnishers
2006 A/c
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POPULATION FOUNDATION OF INDIA
Account: : Paul Furnishers
Page 11
Date Particulars L.F.
Dr.
Cr.
Amount Amount
(Rs)
(Rs)
May By
21
5000
12 Furniture
2006 A/c
MAINTAINING INTEGRITY
OF ACCOUNTS
It is essential to prepare periodically a Bank
Reconciliation Statement and Trial Balance to
assure the integrity/completeness of accounts.
Relevances of both statements are provided
below:
Bank Reconciliation
Statement:
The bank shall send to its customers regularly
a monthly statement with the name and the
account number of the customer (called pass
book) showing all the transactions that have
taken place. Balance shown by the pass book
should agree with the balance shown by the cash
book. However, often there could be differences
even if there is no mistake. The differences could
be due to the following reasons:
(a) Cheques received are entered in the cash
book as soon as they are received. There
may be delay in depositing the cheques in
the bank for collection. Moreover, bank
usually does not credit the amount in
customer's account until the cheques are
realized. In such cases, cash book will
show a higher balance than what is shown
in the customer's account.
(b) As soon as cheques are issued, they are
entered in the cash book, but the bank
again makes no entry until the cheques are
actually presented for payment and are
paid. This means that the bank shows a
higher balance in favour of the customer
than what the cash book shows.
(c) The bank levies charges for services it
renders, known as bank charges. If there
is an overdraft, the bank will charge
interest. These bank charges and interest
are entered in the pass book and the entry
is generally made in the cash book only
when the pass book is received.
(d) The bank is often entrusted with the task
of collecting interest on securities or
dividends on shares or even the collection
of amounts due on bills of exchange or
promissory notes. The bank will credit the
amount in customer's account as soon as
the amounts are received. However, entries
by the customer in the cash book await
receipt of information from the bank.
(e) The bank may also make payments
according to the standing instructions of
the client or in receipt of any special
instruction. Entries in cash book in such
cases are made on receipt of advice from
the bank.
These delays do not matter ordinarily as
both the bank and the client will make entries,
sooner or later, the information is received.
However, to know the clear position and to
be sure that no mistakes have been
committed either on the firm's part or the
bank's part, Bank Reconciliation Statement is
prepared to explain why there is difference.
Thus, a Bank Reconciliation Statement can be
defined as a statement showing all possible
causes of differences between the cash book
and the pass book.
Trial Balance
After posting the entries in the ledger,
totals of all the accounts are drawn up.
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
Based on the strength of the debit and credit
amounts, the ledger accounts will show either
a debit or a credit balance. If the debit side
total is more than the credit side, the
difference is known as debit balance;
similarly, if the credit side total is more than
the debit side total, the difference is known
as credit balance. After drawing such
balances, a statement is prepared to show
separately the debit and the credit balances.
This is called drawing a trial of the debit and
credit balances and hence this statement is
known as Trial Balance. Trial balance is, thus,
a statement containing the various ledger
balances on a particular date. It is prepared
by listing each and every account and entering
in separate columns for the debit and the
credit balances. If the totals of both debit
and credit balances match, then it is said that
the Trial Balance agrees and the accounts are
prima facie correct. The format of the Trial
Balance is shown below:
Trial Balance
As at….
Dr.
Ledger Accounts
Amount
Rs.
Cr.
Amount
Rs.
Why a Trial Balance may not agree?
A trial balance may not tally for many
reasons including the following:
a) The balance of an account is incorrect
b) The amount has been posted on the wrong
side of the account concerned
c) The posting done with incorrect amount
d) The total of a Subsidiary/ Journal day book
is wrong
e) Account is started with wrong amount.
To sum up, the Trial Balance will not tally, if
the transactions are posted wrongly in any of
the accounts concerned.
Errors
The errors in accounting can be broadly
classified into two types:
i) Errors of principle: When a transaction is
recorded in contravention of accounting
principles, it is an error of principle. In this
case, there is no effect on the trial balance,
since the amounts are placed on the correct
sides, though in a wrong account.
ii) Clerical errors: These errors arise because
of mistakes committed in the ordinary
course of the accounting work. They are:
a) Errors of Omission: If a transaction is
completely or partially omitted from the
books of account, it will be an error of
omission.
b) Errors of Commission: While making an
entry, if wrong amount is written either
in the subsidiary book or in the ledger, or
the entry is made on the wrong side of
the account, it is considered as an error
of commission.
c) Compensating Errors: If the effect of the
errors committed are nullified, the error will
be called a compensating error. The Trial
Balance will, however, tally in this regard.
EXPENDITURE AND
RECEIPTS
Capital Expenditure:
Capital expenditure is an expenditure of
enduring nature. In other words, the
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POPULATION FOUNDATION OF INDIA
expenditure whose utility is not finished within
a short period of time, but continues for longer
period. The following are its indicators:
(a) Any expenditure, which is undertaken for
the purpose of increasing the surplus either
positively by way of increasing the
earnings or negatively by decreasing the
expenditure.
(b) If the expenditure, whether increasing the
earning capacity or not, produces an asset,
it is capital expenditure.
Revenue Expenditure:
Any expenditure, which is incurred for
earning an income including the expenditure
required for maintenance of the earning
capacity, including the upkeep fixed assets is
called a revenue expenditure.
Capital Receipt:
Any amount received as grants-in-aid, life
membership fees from the members, donations,
which forms part of the corpus of the
organization, is considered as capital receipt and
is shown as capital fund, corpus fund, asset fund,
etc., in the Balance Sheet of the organization.
Revenue Receipt:
Any amount received as a result of the
day-to-day activities of an organization, including
annual membership fees, general donations,
interest on bank account, is considered as revenue
receipt and is taken as income and credited to
income and expenditure account.
Surplus/Deficit:
Revenue income minus revenue
expenditure pertaining to a stated period will
be the surplus/deficit for that period and
shown as additional/deduction from the
Genral Fund on the Liabilities side of the
Balance Sheet.
FINANCIAL STATEMENTS
FOR NON-PROFIT
ORGANIZATION
Non-profit organizations normally
prepare the following three statements:
(a) Receipts & Payments Account: It
summarizes cash receipts and cash
payments made during the accounting
period and tells about the net cash balance
at the end of accounting period.
(b) Income & Expenditure Account: This
is basically a summary of income and
expenditure relevant to a particular
financial year/period. From the receipts
and payments account, transactions
relating to other financial periods are
removed and the transactions, which
have not been recorded in the Receipts
and Payments account relating to the
concerned period, are added. The
Income & Expenditure account shows
how the organization performed
financially over a given accounting
period. It tells whether the organization
generated surplus or incurred loss during
that period.
(c) Balance Sheet: It tells about the
financial position of the organization
usually at the end of accounting period.
It informs about various assets and
corresponding liabilities of the
organization.
RECEIPTS AND
PAYMENTS ACCOUNT
As noted above, Receipts and Payments
Account summarizes the cash receipts and
cash payments for the concerned period. A
format of the Receipts and Payments
Account is given on next page.
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
It has the following features:
(a) The Receipts & Payments account has
two sides: the receipts side, which is on
the debit side and the payments side,
which is on the credit side.
(b) The opening balances of cash in hand and
at bank are entered on the receipts side,
which is the debit side.
(c) Only cash/bank transactions are shown.
Receipts of cash (or cheques) are put on
the debit side and payments on the credit
side. Both receipts and payments are
classified under suitable account heads.
bank. Credit balance of cash in hand is
not possible, while credit balance of cash
at bank may represent bank overdraft.
The reason why credit balance of cash is
not possible is that one cannot pay more
than what he has. If there is a credit
balance of cash in hand, then there is an
error and needs to be verified and
rectified. Credit balance of cash at bank
reflects overdraft granted by bank. In case,
there is no overdraft facility granted by
the banker, it again reflects either excess
payments without bank balance or some
mistake(s).
(Name of the Organization)
Receipts & Payments Account (R/P A/c)
period/from ………....... to …........…..)
Receipts
To Balance on
January 1, 2006
- In Hand
- At Bank
To Sale of old Newspapers
To Entrance Fees
To Donations for Ground
To Sale of Furniture
To Cricket Fees
Amount
Payments
By Salaries
By Insurance
By Purchase of Radio Set
By Stationery & Postage
By Balance on
31st December, 2006
- In Hand
- At Bank
Amount
(d) All cash transactions, whether capital or
revenue, will be reflected in this account.
It reflects receipts and payments of any
period, irrespective of whether it
pertains to the relevant accounting
period or not. The only consideration
is that the receipts/ payments must have
been made during the accounting
period.
(e) The difference between the two sides
represents cash balance in hand and at
INCOME & EXPENDITURE
ACCOUNT (I/E A/c)
As noted in the earlier paragraphs, the
Income & Expenditure Account informs the
user how much surplus is generated or
deficit is incurred from the operations. The
Income and Expenditure account drawn up
for a non-profit organization is equivalent
to the Profit and Loss Account. It performs
identical functions and is compiled and
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POPULATION FOUNDATION OF INDIA
Distinction between Receipts & Payments Account and Income &
Expenditure Account
Basis of Distinction
Object
Receipts and Payments Account Income and Expenditure Account
Object of this account is to show
the differences between the two
sides of the account denoting the Cash
and Bank balances at close.
Object of this account is to show
the net result of all activities
during the financial year resulting
in surplus or deficit.
Nature
It is a classified summary of
cash transactions for a period
(Real Account).
It is like a profit and loss account
(Nominal Account).
Form
Debit side of this account records
receipts and credit side records
payments.
Debit side of this account records
expenses & losses and credit side
records incomes.
Balance
Balance in the beginning represents
cash in hand in the beginning and
balance at the end represents cash
in hand at the end.
There is no balance in the
beginning. Balance at the end
represents surplus or deficit.
Capital and
revenue items
It records receipts and payments
of both capital and revenue items.
It records incomes and
expenditure of revenue nature only.
Contents
It shows receipts and payments made It shows income and expenditure
during whether they relate to past, pertaining to the current year only.
present or future years.
Balance Sheet
No balance sheet is prepared.
Balance sheet must accompany
this statement.
Depreciation
Does not include depreciation.
Includes depreciation.
prepared on the same principles. It is a
nominal account and records losses and
expenses on the debit side and income and
gains on the credit side. While preparing
Income & Expenditure Account, it should be
ensured that all expenses and incomes,
pertaining to the relevant accounting period,
should be accounted for, irrespective of
whether actually received/paid or not or
received/paid in advance in earlier years.
The balance of Income & Expenditure
Account will either be a surplus or a deficit
and it will be transferred to General Fund
Account in the Balance Sheet. If income is
higher than the expense, it shows surplus,
otherwise it shows deficit. The format of
the Income & Expenditure A/c is as given
on the next page.
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
(Name of the Organization)
Income & Expenditure Account
(period from .................. to ……………)
Expenditure
Secretary's salary
Programme Director's salary
Other staff's salary
Board's honorarium
Office stationery
Rent paid
Electricity
Telephone
Postage & courier
Travelling expenses
Legal expenses
Other misc. expenses
Depreciation
Interest
Surplus
Amount
Rs.
Income
Grants received
Individual contribution
received
Membership fee received
Counselling fee received
Training fee received
Subscription received
Interest on investments
Other receipts
Amount
Rs.
BALANCE SHEET (B/S)
Balance Sheet is a statement reflecting the
financial status of an organization on a
particular date. The objective of the Balance
Sheet is to show the financial state of affairs
of the organization as disclosed by the
books. Entries pertaining to assets and
liabilities are taken to the Balance Sheet that
is prepared on a particular date. Assets are
those items that the organization possesses
including building, equipment, furniture,
fixed deposits, cash, receivables, loan to
others, etc. Liabilities are those items that
the organization owes to others including
liability to owner such as capital, liability to
outsiders such as loans taken, and payments
to be made, etc. Sample format of the
Balance Sheet is given on next page.
Following are the features and basic
requirements of the Balance Sheet:
(a) Organization is regarded as a separate
accounting entity. This facilitates to know
how much the organization owes to
owners or shareholders which is reflected
by capital fund.
(b) The figures are represented in monetary
terms.
(c) Balance Sheet assumes that the
organization is a going concern. This
facilitates to divide the items as capital
and revenue natures, i.e., which will
render benefit for one year or more than
a year.
(d) All assets are stated at cost price except
current assets. Current assets are stated at
the cost or market values, whichever is
lower.
(e) Assets are equal to liabilities (this is a
feature of dual aspect concept)
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POPULATION FOUNDATION OF INDIA
(Name of the Organization)
Balance Sheet
As on (Date………)
Liabilities
Amount
(Rs.)
Assets
Liabilities
Corpus Fund
General Fund
Endowment Funds
Reserves & Surplus
Loans - Secured and unsecured
Deferred Income
Current Liabilities (CL)
Current Provisions
Other Liabilities
– Trade Creditors
– Donations and Grants
received in advance
– Outstanding expenses
– Provision for taxation etc.
Fixed Assets
– Gross Fixed Assets
– (Less) Depreciation
Net Fixed Assets
Investments
Advances
Plant & Machinery
Vehicles
Office Equipment
Furniture & Fixtures
Other Fixed Assets
Current Assets (CA)
– Stock
– Receivables
– Other Current Assets
– Cash in hand
– Cash in bank
Amount
(Rs.)
Total
Total
Liabilities: Liabilities represent what the
organization owes to others. Liabilities are
classified as follows:
Capital fund: It represents the
contributions of owners or shareholders.
Reserves and Surplus: These are profits/
surplus, which have been retained in the
organization.
Secured loan: It denotes borrowings
against which specific securities have been
provided. The important components of
secured loans are: loans from banks, loans
from institutions, debentures, etc.
Unsecured loan: It denotes borrowings
against which no specific securities have been
provided. Examples are: loans from the Board
members and shareholders, inter-company
borrowings, unsecured loans from the banks, etc.
Current liabilities and provisions:
These liabilities are serviceable within a year,
i.e within 12 months from the date of Balance
Sheet. Examples are: loans payable within a
year, creditors because of goods purchased
or services utilized, outstanding expenses,
advance income received, provision for
taxation, etc.
Assets: Asset represents resources that the
organisation possesses. Assets are classified
as follows:
Fixed assets: These are assets acquired to
render benefit for quite long period and to
facilitate the working of the organization.
Examples are land, building, equipment,
furniture, patents and copyrights, etc.
Investments: These are the financial
securities owned by the firm. Some
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
investments may be long-term commitment
such as shares or debentures purchased, while
others may be short term, for example 6
month fixed deposits with banks.
Current assets, loans and advances:
This consists of cash and other resources,
which get converted into cash during the
operating cycle. Current assets are held for
short period usually for less than one year.
The major components of current assets are:
cash, debtors, inventories, loans and advances,
and prepaid expenses. Cash denotes funds
readily disbursable by the organization. The
bulk of cash is usually in the form of bank
balance. The rest comprises of currency held.
Debtors (receivables) represent amount owed
to the firm by its customers, who have bought
goods, benefited from services on credit.
Inventories consist of stock of raw materials,
finished goods, stores and spares. They are
represented at the cost or market value,
whichever is lower. Loans and advances are
the amounts loaned to employees, advances
given to suppliers, and deposits made with
other agencies. They are shown at actual
amount. Prepaid expenses are expenditures
incurred for services to be rendered in future.
Other assets: It consists of miscellaneous
expenditures and losses. Miscellaneous
expenditures represent certain outlays such as
preliminary expenses and pre-operative
expenses, which have not been written off.
From accounting point of view, a loss
represents a decrease in capital fund. However,
if the amount is not deducted from the capital
fund, then the amount of loss has to be shown
on the asset side of the Balance Sheet.
REQUISITE MONTHLY
REPORTS
(a) Statement of position (Balance Sheet).
What is our financial status? Can we pay
our bills?
(b) Statement of activities (consolidated)
showing budget to actual information.
What has been our overall financial
performance this month and to date?
(c) Departmental Income and Expense
Statement showing budget to actual
information. How does actual financial
experience compare with the budget? Is
special action called for, such as limiting
expenses in certain areas? Does experience
indicate a change in the budget is appropriate?
(d) Narrative report including tax and financial
highlights, important grants received,
recommendations for short-term loans, or
other means of managing cash flow.
(e) An executive summary of financial
highlights, analysis, and concerns.
QUARTERLY/HALF-YEARLY
REPORTS
(a) Fund-raising reports; actual vs.
projections for donations; status report
on all foundations proposals. Are the
results of fund-raising on track?
(b) Cash flow projections for the next six
months. Do we anticipate a cash surplus
or shortage?
(c) Whether statutory dues have been
remitted in time or not?
(d) Preparation of Quarterly Expenditure
Reports (QER).
ANNUAL REPORTS
(a) Annual reports to Central and State
governments. Has the organization
fulfilled its reporting responsibilities to
Central and State governments?
(b) Draft financial statements for a year—
Statement of activities; Statement of
position; Income statement for each
programme; Aggregated financial
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POPULATION FOUNDATION OF INDIA
statements with narrative showing key
trends. Focus: internal management decision-
making. What was our financial
performance over the past year? What are
the reasons and in what ways is the
performance different from the budget?
What financial implications must be taken
into account when planning the upcoming
year?
(c) Audited financial statements for entire
organization, including Statement of
position, Statement of activities,
Statement of cash flow, Statement of
functional expenses, etc. External
accountability and financial disclosure to
funders and the public.
(d) Audited Utilization Certificate in the
prescribed format (GFR - 19 A). (Format
enclosed as an Annexure)
(e) Management letter from the auditor.
What recommendations has the auditor
made relating to the accounting system,
internal controls, and financial planning?
MAINTENANCE OF
ORGANIZATIONAL,
ADMINISTRATIVE AND
FINANCIAL RECORDS
Every NGO should maintain and update
the following records:
1. Organizational Records
• Registration Certificate (Society/Trust/
Company) (Renewed if State
government requirement)
• Memorandum and By-laws
• Registration under Section 12A(a)
(Income Tax Act)
• Registration under Section 80G
• Copy of PAN number
• Copy of TAN number
• Minutes Book—Recording
• Time, date and place of meeting
• Members present—name with signature
• Records of decisions taken
• Resolutions passed—serially numbered
• Every page of book—serially
numbered
• Each page should be signed and
attested by the chairperson and the
secretary
• Record of filing of annual returns with
Registrar of Societies
• PF Returns—Form 3A/6A
• Income Tax Retrns, TDS Returns—
Form 24/26
2. Administrative Records
• Service rules, if any
• Staff appointment orders
• Attendance register
• Leave rules and records
• Provisions of TA/DA
• Log book
• Movement register
• Telephone registers (incoming and
outgoing)
• Personal files of staff
• Letters
• Inward register
• Outward register
• Organogram of the main organization
and NGO programme.
• Contract/agreement (lease/rent) title
deed of property/premises used for
NGO programme.
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
3. Financial Records
• Cash/Bank book
• Ledger
• Journal day book
• Stock register
• Asset register—GFR 19
• Vouchers
• Bank pass book
• Cheque book
• Copy of bond
• Copy of certificate/undertaking
• Sanction letters
• In case of NGOs—quarterly reports
received from the NGOs and U/Cs
received.
• Copy of reports and U/Cs sent to State
RCH Society.
• In case of NGOs—quarterly reports
sent and U/Cs sent.
• Copies of Receipts and Payments
account
• Copies of Income and Expenditure
account
• Copies of Balance Sheet.
PROJECT BUDGETING AND
MONITORING
What is a Budget?
A budget can be defined as "financial or
quantitative statements", prepared prior to a
defined period of time, consisting of policies
and practices to be followed, during that
definite period of time and the implementation
of these policies for the attainment of the given
objectives.
What are the Advantages of a Budget?
Budgets for an organization or project are
used to:
i. Help implement objectives
ii. Calculate the estimated income and
expenditure
iii. Coordinate activities and communicate
plans
iv. Motivate staff by setting clear targets
v. Monitor and evaluate actual performance.
What is Involved in Budgeting?
Budgets are usually managed in three
stages:
• Planning- setting the objectives and
deciding what this will mean in terms of
income and expenditure within the overall
parameters of the organisations
• Monitoring- measuring how well the
actual income and expenditure equates to
the planned amounts. Regular statements
help to identify the differences between
the budgeted and actual figures and to
take the corrective actions.
• Evaluating through a general review
how closely the objectives have been
achieved and identifying new parameters
for the ensuing period.
Stages in Planning a Budget:
• Identify the organizational or project
objectives;
• Identify the limiting factor;
• Collect the data;
• Ensure all the information required is
available. Likely sources include:
• Previous years information
• Level of inflation
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POPULATION FOUNDATION OF INDIA
• Amount of salary increases and
increments
• Estimates from suppliers
• Level of income or grant.
• Determine the amounts to be spent
Breakdown the items into various expenses
by following the budget headings, if they
already exist. If a budget had been prepared
in the previous year with actual costs, it will
be a guide to the amount required for the
current budget. Inflationary increases and
amounts for programme growth will also
need to be added.
• Construct the budget
Write down the budget item-wise, ensure
the total of incomes and expenditure are
the same. Once the budget has been
prepared and the operation has started, it is
essential to monitor how close the actual
income and expenditure is to that predicted.
This enables to ascertain the financial status
of the organizations on a regular basis.
Stages in Monitoring a Budget:
A comparison of the budgeted amounts
and the actual income and expenditure is
prepared monthly or quarterly. It is sometimes
called a budget and actual statement. The
information is usually put together by finance
staff and received by those responsible for
the budget.
Monitor the income and expenditure
regularly:
The variance between the budgeted and
actual income and expenditure should be
explained. It is helpful to focus on the higher
differences in percentage variance. The reasons
for differences between actual and budget
could be:
• An invoice has not been processed for
an item already received.
• A payment in advance could have been
made and included, although the goods
or services have not yet been received.
• The budget was incorrectly prepared.
• The activity envisaged has not taken place
or has partly taken place.
FOREIGN CONTRIBUTION
(REGULATION) ACT, 1976
Foreign Contribution (Regulation) Act
1976, known as FCRA, regulates the receipt
of foreign contribution in India. This Act has
32 sections and 9 rules. The Act has also been
amended only once vide Amendment Act
1985 w.e.f 20th October 1984 while rules have
been amended 9 times the latest being 26th
July 2001 wherein Form FC-3 (Annual Return)
was amended.
Controlling Office
The Ministry of Home Affairs looks into
the implementation of FCRA in a centralized
manner. The address of the concerned
authority is:
The Secretary,
Government of India,
Ministry of Home Affairs,
Jaisalmer House,
26, Man Singh Road,
New Delhi-110011.
The Foreign Contribution (Regulation)
Act, 1976 is an Act to regulate the acceptance
and utilization of foreign contributions/
donations or foreign hospitality by certain
persons or associations, with a view to
ensuring that Parliamentary institutions,
political associations and academic and other
voluntary organizations as well as individuals
working in the important areas of national life
may function in a manner consistent with the
values of a Sovereign Democratic Republic.
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
It is basically an Act to ensure that the
integrity of Indian institutions and persons is
maintained and that they are not unduly
influenced by foreign donations to the
prejudice of India's interests.
The Act extends to the whole of India,
and it also applies to:
i. the citizens of India and outside India
ii. the associates, branches or subsidiaries
outside India companies or bodies,
corporate, registered or incorporated in
India.
Definitions
"Association" means an association of
individuals, whether incorporated or not,
having an office in India and includes a society,
whether registered under the Societies
Registration Act 1860, or not, and any other
organization, by whatever name called.
"Candidate for election" means a person,
who has been duly nominated as a candidate
for election to any Legislature.
"Foreign contribution" means the
donation, delivery or transfer made by any
foreign source:
i. of any article, not being an article given
to a person as a gift for his personal use,
if the market value, in India, of such
article, on the date of such gift, does not
exceed one thousand rupees
ii. of any currency, whether Indian or
foreign
iii. of any foreign security
A donation, delivery or transfer of any
article, currency or foreign security referred
to in this clause by any persons, who has
received it from any foreign source, either
directly or through one or more persons, shall
also be deemed to be foreign contribution
within the meaning of this clause.
"Foreign hospitality" means any offer, not
being a purely casual one, made by foreign
source for providing a person with the costs
of travel to any foreign country or territory
or with free board, lodging, transport or
medical treatment.
“Foreign source” includes
i. the Government of any foreign country
or territory and any agency of such
government to any international agency,
not being the United Nations or any of
its specialized agencies, the World Bank,
International Monetary Fund or such
other agency as the Central Government
may, by notification in the Official
Gazette, specify in this behalf
ii. a foreign company within the meaning of
Section 591 of the Companies Act, and
also includes:
a. a company, which is a subsidiary of a
foreign company, and
b. a multi-national corporation within the
meaning of this Act,
i. a corporation, not being a foreign
company, incorporated in a foreign
country or territory
ii. a multi-national corporation within the
meaning of this Act
iii. a company within the meaning of the
Companies Act, 1956, if more than one-
half of the nominal value of its share
capital is held, either singly or in the
aggregate by one or more of the
following, namely:
a. government of a foreign country or
territory
b. citizens of a foreign country or territory
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POPULATION FOUNDATION OF INDIA
c. corporations incorporated in a foreign
country or territory
d. trusts, societies or other associations of
individuals (whether incorporated or not),
formed or registered in a foreign country
or territory,
i. a trade union in any foreign country or
territory, whether registered or not in such
a foreign country or territory
ii. 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
iii. a society, club or other association of
individuals formed or registered outside
India
iv. a citizen of a foreign country, but does not
include any foreign institution, which has
been permitted by the Central
Government by notification in the Official
Gazette, to carry on its activities in India.
“Legislature” means
i. either House of Parliament,
ii. the Legislative Assembly of a State, or in
the case of State having a Legislative
Council, House of the Legislature of that
State,
iii. Legislative Assembly of a Union Territory
constituted under the Government of
Union Territories Act, 1963.
iv. the Metropolitan Council of Delhi
constituted under Section 3 of the Delhi
Administration Act, 1966,
v. Municipal Corporations in metropolitan
areas as defined in the Code of Criminal
Procedure, 1973,
vi. District Council and Regional Councils in the
States of Assam and Meghalaya and in the
Union Territory or Mizoram as provided in
the Sixth Schedule to the Constitution, or
vii. any other elective body as may be notified
by the Central Government, as the case
may be.
"Political Party" means
(i) an association or body of individual
citizens of India:
a. which is, or is deemed to be, registered
with the Election Commission of India
as a political party under the Election
Symbols (Reservation and Allotment)
Order, 1968, as in force for the time being;
or
b. which has set up candidates for election
to any Legislature, but is not so registered
or deemed to be registered under the
Election Symbols (Reservation and
Allotment) order, 1968;
c. a political party mentioned in column 1
of Table I to the notification of the
Election Commission of India No. 56/
J&K/84, dated the 27th September, 1984,
as in force for the time being.
"Registered Newspaper" means a
newspaper registered under the Press and
Registration of Books Act, 1956.
"Deemed Multinational Corporation":
For the purpose of this Act, a corporation
incorporated in a foreign country or
territory shall be deemed to be a
multinational corporation if such
corporation:
i. has a subsidiary or a branch or a place of
business in two or more countries or
territories; or
ii. carries on business, or otherwise operates,
in two or more countries or territories.
The provisions of this Act shall be in
addition to, and not in derogation of, any other
law for the time being of force.
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
Regulation of Foreign Contribution and
Foreign Hospitality
Candidate for election, etc, not to accept
foreign contribution.
No foreign contribution shall be accepted
by any:
i. candidate for election
ii. correspondent, columnist, cartoonist,
editor, owner, printer or publisher of a
registered newspaper
iii. Judge, Government servant or employee of
any corporation. Corporation, for this
purpose, means a corporation owned or
controlled by government and includes a
government company as defined in Section
617 of the Companies Act, 1956.
iv. member of any Legislature,
v. political party or office-bearer thereof.
No person, resident in India, and no citizen
of India resident outside India, can accept any
foreign contribution, or acquire or agree to
acquire any currency from a foreign source,
on behalf of any political party, or any person
referred to above or both.
No person, resident in India, shall deliver
any currency, whether Indian or foreign, which
has been accepted from any foreign source,
to any person if he knows or has reasonable
cause to believe that such other person intends,
or is likely, to deliver such currency to any
political party or any person referred to above
or both.
No citizen of India, residing outside India,
shall deliver any currency, whether Indian or
foreign, which has been accepted from any
foreign source, to-
i. any political party or any person referred
to above or both,
ii. any other person, if he knows or has
reasonable cause to believe that such other
person intends, or is likely, to deliver such
currency to a political party or to any
person referred to above or both.
No person receiving any currency, whether
Indian or foreign, from a foreign source on
behalf of any association referred to below
shall deliver such currency:
i. to any association or organisation other
than the association for which it was
received, or
ii. to any other person, if he knows or has
reasonable cause to believe that such other
person intends, or is likely, to deliver such
currency to an association other than the
association for which such currency was
received.
The above provisions do not apply to the
following persons:
Nothing contained above shall apply to the
acceptance, by any person specified above,
of any foreign contribution, where such
contribution is accepted by him, subject to
the powers of the Central Government:
i. by way of salary, wages or other
remuneration due to him or to any group
of persons working under him, from any
foreign source or by way of payment in
the ordinary course of business transacted
in India by such foreign source; or
ii. by way of payment, in the course of
international trade or commerce or in the
ordinary course of business transacted by
him outside India, or
iii. as an agent of foreign source in relation
to any transaction made by such foreign
source with government; or
iv. by way of gift or presentation made to
him as a member of any Indian
delegation, provided that such gift or
present was accepted in accordance with
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POPULATION FOUNDATION OF INDIA
the regulations made by the Central
Government with regard to the
acceptance or retention of such gift or
presentation; or
v. from his relative when such foreign
contribution has been received with the
previous permission of the Central
Government. No such permission shall
be required if the amount of foreign
contribution received by him from his
relative does not exceed in value, eight
thousand rupees per annum and an
intimation is given by him to the Central
Government as to the amount received,
the source from which and the manner in
which it was received and the purpose for
which and the manner in which it was
utilized by him.
vi. by way of remittance received, in the
ordinary course of business, through any
official channel, post office, or any
authorized dealer in foreign exchange.
No organisation of a political nature, not
being a political party, shall accept any foreign
contribution except with the prior permission
of the Central Government.
For this purpose, "organisation of a
political nature, not being a political party"
means such organisation as the Central
Government may, having regard to the
activities of 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, by an order
published in the Official Gazette, specify in
this behalf.
Except with the prior permission of the
Central Government, no person, resident in
India, and no citizen of India, resident outside
India, shall accept any foreign contribution,
or acquire or agree to acquire any foreign
currency, on behalf of such organisation.
Except with the prior permission of the
Central Government, no person, resident in
India, shall deliver any foreign currency to any
person, if he knows or has reasonable cause
to believe that such other person intends, or
is likely, to deliver such currency to such an
organization.
Except with the prior approval of the
Central Government, no citizen of India,
resident outside India shall deliver any
currency, whether Indian or foreign, which
has been accepted from any foreign source
to:
i. any organisation referred to above, or
ii. any person, if he knows or has reasonable
cause to believe that such person intends,
or is likely, to deliver such currency to
such an organisation.
Certain associations and persons receiving
foreign contribution to give intimation to the
Central Government.
No association having a definite cultural,
economic, educational, religious or social
programme shall accept foreign contribution
unless such association:
i. registers itself with the Central
Government in accordance with the rules
made under this Act; and
ii. agrees to receive such foreign
contributions only through one of such
branches of a bank, as it may specify in its
application for such registration, and every
association so registered shall give, within
such time and in such manner as may be
prescribed, an intimation to the Central
Government as to the amount of each
foreign contribution received by it, the
source from which and the manner in
which such foreign contribution was
utilized by it.
Where such association obtains any foreign
contribution through any branch other than
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
the branch of the bank through which it has
agreed to receive foreign contribution or fails
to give such intimation within the prescribed
time or in the prescribed manner, or gives
any intimation which is false, the Central
Government may, by notification in the
Official Gazette, direct that such association
shall not, after the date of issue of such
notification, accept any foreign contribution
without the prior permission of the Central
Government.
Every association referred to above may,
if it is not registered with the Central
Government, accept any foreign contribution
only after obtaining the prior permission of
the Central Government and shall also give,
within such time and in such manner as may
be prescribed, an intimation to the Central
Government as to the amount of foreign
contribution received by it, the source from
which and the manner in which such foreign
contribution was received and the purposes
for which and the manner in which such
foreign contribution was utilized by it.
Every candidate for election, who had
received any foreign contribution, at any time
within one hundred and eighty days
immediately preceding the date on which he
is duly nominated as such candidate, shall give,
within such time and in such manner as may
be prescribed, an intimation to the Central
Government as to the amount of foreign
contribution received by him, the source from
which and the manner in which such foreign
contribution was received and the purposes
for which, and the manner in which, such
foreign contribution was utilized by him.
Recipients of Scholarships, etc. to give
Intimation to the Central Government.
Every citizen of India receiving any
scholarship, stipend or any payment of a like
nature from any foreign source shall give,
within such time and in such manner as may
be prescribed, an intimation to the Central
Government as to the amount of the
scholarship, stipend or other payment received
by him and the foreign source from which,
and the purpose for which, such scholarship,
stipend or other payment has been, or is being,
received by him.
Where any recurring payments are being
received by any citizen of India from any
foreign source by way of scholarship, stipend
or other payment, it shall be sufficient if the
intimation referred to above includes a precise
information as to the intervals at which, and
the purpose for which, such recurring
payments will be received by such citizen of
India.
It shall not be necessary to give such
intimation, as is referred to above, in relation
to scholarships, stipends or payments of a like
nature, if the annual value of such
scholarships, stipends, or other payments does
not exceed such limits as the Central
Government may, by rules made under this
Act, specify in this behalf.
Restrictions on Acceptance of Foreign
Hospitality
No Member of a Legislature, office-bearer
of a political party, Judge, Government servant
or employee of any corporation shall, while
visiting any country or territory outside India,
accept, except with the prior permission of the
Central Government, any foreign hospitality. It
will not be necessary to obtain any such
permission for an emergent medical aid needed
on account of sudden illness contracted during
the visit outside India, but where such foreign
hospitality has been received, the person receiving
such hospitality shall give, within one month
from the date of receipt of such hospitality, an
intimation to the Central Government as to the
receipt of such hospitality and the source from
which, and the manner in which, such hospitality
was received by him.
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For this purpose, "corporation" means a
corporation owned or controlled by
government and includes a government
company as defined in Section 617 of the
Companies Act, 1956.
Power of Central Government to Prohibit
Receipt of Foreign Contribution, etc. in
Certain Cases
The Central Government may:
i. prohibit any association or any person,
from accepting any foreign contribution.
ii. require any association to obtain prior
permission of the Central Government.
before accepting any foreign contribution
iii. require any person or class of persons
or any association to furnish intimation
within such time and in such manner as
may be prescribed as to the amount of
any foreign contribution received by
such person or class of persons or
association, as the case may be and the
source from which and the manner in
which such contribution was received
and the purpose for which and the
manner in which such foreign
contribution was utilized.
iv. require any person or class of persons to
obtain prior permission of the Central
Government before accepting any
foreign hospitality
v. require any person or class of persons to
furnish intimation, within such time and
in such manner as may be prescribed, as
to the receipt of any foreign hospitality,
the source from which and the manner
in which such hospitality was received.
However, no such prohibition or
requirement shall be made unless the
Central Government is satisfied that the
acceptance of foreign contribution by
such association or person or class of
persons, the case may be, the acceptance
of foreign hospitality by such person, is
likely to affect prejudicially:
a. the sovereignty and integrity of India; or
b. the public interest; or
c. freedom or fairness of election to any
Legislature; or
d. friendly relations with any foreign State; or
e. harmony between religious, racial,
linguistic or regional groups, castes or
communities.
Application to be Made in the Prescribed
form for Obtaining Prior Permission to
Accept Foreign Contribution or Hospitality
Every individual, association, organization
or other person, is required by or under this
Act to obtain the prior permission of the
Central Government to accept any foreign
contribution or foreign hospitality, shall, before
the acceptance of any such contribution or
hospitality, make an application for such
permission to the Central Government in such
form and in such manner as may be
prescribed.
If an application referred to above is not
disposed of within ninety days from the date of
receipt of such application, the permission
prayed for in such application shall, on the expiry
of the said period of ninety days, be deemed to
have been granted by the Central Government.
However, where in relation to an application,
the Central Government has informed the
applicant the special difficulties by reason of
which his application cannot be disposed of
within the said period of ninety days, such
application shall not, until the expiry of a further
period of thirty days, be deemed to have been
granted by the Central Government.
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Miscellaneous
Power to Prohibit Payment of Currency
Received in Contravention of the Act
Where the Central Government is satisfied,
after making such inquiry as it may deem fit,
that any person has in his custody or control
any article or currency, whether Indian or
foreign, which has been accepted by such
person in contravention of any of the
provisions of this Act, it may, by order in
writing, prohibit such person from paying,
delivering, transferring or otherwise dealing
with, in any manner whatsoever, such article
or currency save in accordance with the
written order of the Central Government.
A copy of such order shall be served upon
the person so prohibited in the prescribed
manner, and thereupon the provisions of sub-
sections (2), (3), (4) and (5) of Section 7 of the
Unlawful Activities (Prevention) Act, 1967 shall
apply to, or in relation to, such article or currency
and references in the said sub-sections to
moneys, securities or credits shall be construed
as references to such article or currency.
Recipients of Foreign Contribution to
Maintain Accounts, etc.
Every association referred to above shall
maintain, in such form and in such manner as
may be prescribed:
i. an account of any foreign contribution
received by it, and
ii. a record as to the manner in which such
contribution has been utilized by it.
Inspection of Accounts or Records
If the Central Government has, for any
reason, to be recorded in writing, any ground
to suspect that any provision of this Act has
been, or is being, contravened by:
i. any political party, or
ii. any person, or
iii. any organization, or
iv. any association.
It may, by general or special order,
authorize such Gazetted Officer, holding a
Group A post as it may think fit (hereinafter
referred to as the Authorized officer), to
inspect any account or record maintained by
such political party, person, organization or
association, as the case may be, and thereupon
every such Authorized officer shall have the
right to enter in or upon any premises at any
reasonable hour, before sunset and after
sunrise, for the purpose of inspecting the said
account or record. However, no Gazetted
Officer shall be authorized to inspect the
account or record maintained by a political
party, unless he has been holding a Group A
post in connection with the affairs of the
Union, or a State, for not less than ten years.
Seizure of Accounts or Records
If, after inspection of the account or record,
the Authorized officer has any reasonable cause
to believe that any provision of this Act or of
any other law relating to foreign exchange has
been, or is being, contravened, he may seize
such account or record and produce the same
before the court in which any proceeding is
brought for such contravention. However, the
Authorized officer shall return such account
or record to the person from whom it was
seized, if no proceeding is brought within six
months from the date of such seizure for the
contravention disclosed by such account or
record.
Audit of Accounts
Where any organization or association
fails to furnish any return under this Act within
the time specified therein or the returns so
furnished are not in accordance with law or
if, after inspection of such returns, the Central
Government has any reasonable cause to
believe that any provision of this Act has
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POPULATION FOUNDATION OF INDIA
been, or is being, contravened, that
Government may, by general or special order,
authorize such Gazetted Officer, holding a
Group A post, as it may think fit, to audit any
books of account kept or maintained by such
organization or association, as the case may
be, and thereupon every such officer shall have
the right to enter in or upon any premises at
any reasonable hour, before sunset and after
sunrise, for the purpose of auditing the said
books of account:
Any information obtained from such audit
shall be kept confidential and shall not be
disclosed except for the purposes of this Act.
Seizure of Article or Currency Received
in Contravention of the Act
If any Gazetted Officer, authorized in this
behalf by the Central Government by general
or special order, has any reason to believe that
any person has in his possession or control
any article exceeding rupees one thousand in
value, or currency, whether Indian or foreign,
in relation to which any provision of this Act
has been or is being contravened, he may seize
such article or currency.
Seizure to be Made in Accordance with the
Code of Criminal Procedure, 1973
Every seizure made under this Act shall
be made in accordance with the provision of
Section 100 of the Code of Criminal
Procedure, 1973.
Confiscation of Article or Currency
Obtained in Contravention of the Act
Any article or currency, which is seized,
shall be liable to confiscation if such article
or currency has been adjudged to have been
received or obtained in contravention of
this Act.
Adjudication of Confiscation
Any confiscation referred to above may
be adjudged:
i. without limit, by the Court of Sessions
within the local limits of whose
jurisdiction the seizure was made; and
ii. subject to such limits as may be
prescribed, by such officer, not below the
rank of an Assistant Sessions Judge, as
the Central Government may, by
notification in the Official Gazette,
specify in this behalf.
Opportunity to be Given before
Adjudication of Confiscation
No order of adjudication of confiscation
shall be made unless a reasonable opportunity
of making a representation against such
confiscation has been given to the person
from whom any article or currency has been
seized.
Appeal
Any person aggrieved by any order made
as aforesaid may prefer an appeal:
i. where the order has been made by the
Court of Sessions, to the High Court to
which such Court is subordinate
ii. where the order has been made by any
officer specified under clause
iii. to the Court of Sessions within the local
limits of whose jurisdiction such order of
adjudication of confiscation was made,
within one month from the date of
communication to such person of the order.
The Appellate Court may, if it is satisfied
that the appellant was prevented by sufficient
cause from preferring the appeal within the
said period of one month, allow such appeal
to be preferred within a further period of
one month, but not thereafter.
Any organization referred to in Section 5
(organization of a political nature), or
any person or association referred to in Section
9 (Restriction on acceptance of foreign
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
hospitality) or Section 10 (Powers of the
Central Government) aggrieved by an order
made in pursuance of Section 5 or by an order
made by the Central Government refusing to
give permission, or by any order made by the
Central Government, under Section 5 or
Section 9 or Section 10, as the case may be,
may within sixty days from the date of such
order prefer an appeal against such order to
the High Court within the local limits of whose
jurisdiction the appellant ordinarily resides or
carries on business or personally works for gain,
or, where the appellant is an organization or
association, or principal officer of such
organization of association is located.
Every appeal preferred under this section
shall be deemed to be an appeal from an
original decree and the provisions of Order
XLI of the First Schedule to the Code of Civil
Procedure, 1908, shall, as far as may be, apply
thereto as they apply to an appeal from an
original decree.
Penalty for Article or Currency Obtained
in Contravention of Section 12
If any person, on whom any
prohibitory order has been served pays,
delivers, transfers or otherwise deals with,
in any manner whatsoever, any article or
currency, whether Indian or foreign, in
contravention of such prohibitory order,
he shall be punished with imprisonment for
a term which may extend to three years, or
with fine, or with both.
Notwithstanding anything contained in
the Code of Criminal Procedure, 1973, the
court trying such contravention may also
impose on the person convicted an
additional fine equivalent to the market
value of the article or the amount of the
currency in respect of which the prohibitory
order has been contravened by him or such
part thereof as the court may deem fit.
Punishment for the Contravention of any
Provision of the Act
Whoever accepts or assists any person,
political party or organization in accepting any
foreign contribution or any currency from a
foreign source, in contravention of any
provision of this Act or any rule made
thereunder, shall be punished with
imprisonment for a term which may extend
to five years, or with fine, or with both.
Whoever accepts any foreign hospitality in
contravention of any provision of this Act, or
any rule made thereunder, shall be punished
with imprisonment for a term, which may
extend to three years, or with fine, or with both.
Power to Impose Additional Fine where
Article or Currency is not Available for
Confiscation
Notwithstanding anything contained in the
Code of Criminal Procedure, 1973, the court
trying a person, who, in relation to any article
or currency, whether Indian or foreign, does
or omits to do any act which act or omission
would render such article or currency liable to
confiscation under this Act, may, in the event
of the conviction of such person for the act
or omission aforesaid, impose on such person
a fine not exceeding five times the value of
the article or currency, if not available for
confiscation, and the fine so imposed shall be
in addition to any other fine which may be
imposed on such person under this Act.
Penalty for Offences where no Separate
Punishment has been Provided
Whoever fails to comply with any
provision of this Act for which no separate
penalty has been provided in this Act shall be
punished with imprisonment for a term,
which may extend to one year, or with fine
not exceeding one thousand rupees, or with
both.
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POPULATION FOUNDATION OF INDIA
Prohibition of Acceptance of Foreign
Contribution
Notwithstanding anything contained in
this Act, whoever, having been convicted of
any offence insofar as such offence relates to
the acceptance or utilization of foreign
contribution, is again convicted of such
offence shall not accept any foreign
contribution for a period of three years from
the date of the subsequent conviction.
Offences by Companies
Where an offence under this Act or any
rule made thereunder has been committed by
a company, every person who, at the time the
offence was committed was in charge of, and
was responsible to, the company for the
conduct of the business of the company, as
well as the company, shall be deemed to be
guilty of the offence and shall be liable to be
proceeded against and punished accordingly.
However, nothing contained in this sub-
section shall render such person liable to any
punishment if he proves that the offence was
committed without his knowledge or that he
had exercised all due diligence to prevent the
commission of such offence.
Where an offence under this Act or any
rule made thereunder has been committed by
a company and it is proved that the offence
has been committed with the consent or
connivance of or is attributable to any neglect
on the part of any Director, Manager,
Secretary or other officers of the company,
such Director, Manager, Secretary or other
officer shall also be deemed to be guilty of
that offence and shall be liable to be
proceeded against and punished accordingly.
For the purposes of this Section:
i. "Company" means any body corporate
and includes a firm, society, trade union
or other association of individuals; and
ii. "Director", in relation to a firm, society,
trade union or other association of
individuals, means a partner in the firm
or a member of the governing body of
such society, trade union or other
association of individuals.
Bar to the Prosecution of Offences under
the Act
No court shall take cognizance of any
offence under this Act, except with the
previous sanction of the Central Government
or any officer authorized by that Government
in this behalf.
Investigation into Cases under the Act
Notwithstanding anything contained in the
Code of Criminal Procedure, 1973, any
offence punishable under this Act may also
be investigated into by such authority as the
Central Government may specify in this behalf
and the authority so specified shall have all
the powers, which an officer-in-charge of a
police station has, while making an
investigation into a cognizable offence.
Protection of Action Taken in Good Faith
No suit or other legal proceedings shall lie
against the Central Government in respect of
any loss or damage caused or likely to be
caused by anything, which is in good faith
done or intended to be done in pursuance of
the provisions of this Act or, any rule or order
made thereunder.
Power to Make Rules
The Central Government may, by
notification in the Official Gazette, make rules
for carrying out the provisions of this Act.
In particular, and without prejudice to the
generality of the foregoing power, such rules
may provide for all or any of the following
matters, namely:
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
i. the time within which, and the manner in
which, intimation is to be given by an
association, with regard to the foreign
contributions received by it;
ii. the limits up to which receipt of
scholarships, stipends or payments of a
like nature need not be intimated to the
Central Government;
iii. the time within which, and the manner in
which, intimation is to be given by persons
receiving any scholarship, stipend or any
payment of a like nature from a foreign
source;
iv. the time within which, and the manner in
which a candidate for election should give
intimation as to the amount of foreign
contribution received by him at any time
within one hundred and eighty days from
the date when he became such candidate;
v. the form and the manner in which an
application shall be made for obtaining
prior permission of the Central
Government to receive foreign
contribution or foreign hospitality;
vi. the manner of service of the prohibitory
order;
vii. the form and the manner in which
accounts or records shall be maintained;
viii. the limits up to which an officer, not
below the rank of an Assistant Sessions
Judge, may make adjudication of
confiscation;
ix. any other matter, which is required to be,
or may be, prescribed.
Every rule made by the Central Government
under this Act shall be laid, as soon as may be
after it is made, before each House of Parliament
while it is in session for a total period of thirty
days, which may be comprised in one session
or more successive sessions. If, before the expiry
of the session immediately following the session
or successive sessions aforesaid, both Houses
agree in making any modification in the rule or
both Houses agree that the rule should not be
made, the rule shall thereafter have effect only
in such modified form or be of no effect as the
case may be.
However, any such modification or annulment
shall be without prejudice to the validity of
anything previously done under that rule.
Power to Exempt
If the Central Government is of opinion
that it is necessary or expedient in the interest
of the general public so to do, it may, by order
and subject to such conditions as may be
specified in the order, exempt any association
(not being a political party), organization or any
individual (not being a candidate for election)
from the operation of all or any of the
provisions of this Act and may, as often as may
be necessary, revoke or modify such order.
Act not to Apply to Government
Transactions
Nothing contained in this Act shall apply
to any transaction between the Government
of India and the Government of any foreign
country or territory.
The Foreign Contribution (Regulation)
Rules, 1976
The Central Government has made the
Foreign Contribution (Regulation) Rules, 1976.
Application for obtaining prior
permission to receive foreign contribution
or foreign hospitality
An application for obtaining prior
permission of the Central Government to :
i. receive foreign contribution under sub-
section (1) of Section 5, or clause (a) of
sub-section (2) of that Section, shall be
made in Form FC-1;
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POPULATION FOUNDATION OF INDIA
ii. receive foreign contribution under
proviso to sub-section (1) of Section 6,
or under sub-section (1A) of that Section
of clause (b) of Section 10, shall be made
in Form FC-1A;
iii. accept foreign hospitality under Section
9, or clause (d) of Section 10, shall be
made in Form FC-2.
Application for Registration
An application for registration of
an association referred to in sub-section (1)
of Section 6 for acceptance of foreign
contribution shall be made in Form FC-8.
Intimation Regarding Receipt of Foreign
Contribution or Scholarship or Stipend or
any Payment of a Like Nature or Foreign
Hospitality
An intimation as to the receipt of:
i. foreign contribution by an association
referred to in sub-sections (1) and (1A)
of Section 6 shall be given every year
beginning on the 1st day of April in Form
FC-3 in duplicate within 120 days of the
closure of the year. A nil report shall also
be furnished. The format for FC-3 is given
below:
FORM FC-3
[SEE RULE 4(A)]
To
The Secretary to the Government of India,
Ministry of Home Affairs, Jaisalmer House, 26, Mansingh Road,
New Delhi – 110011
Account of Foreign Contribution for the year ending on 31st March__________________
1. Associations details:
(i) Name and address (in Capital Letters):
(ii) Registration number and date [under the Foreign Contribution (Regulation) Act, 1976]:
(iii) Prior permission number and date, if not registered:
(iv) Nature of association: (1) Cultural (2) Economic (3) Educational (4) Religious (5) Social
(v) Denomination in case of religious association: (a) Hindu (b) Sikh (c) Muslim (d) Christian
(e) Buddhist (f) Others
1 A (i) Total amount of foreign contribution received during the year:
(ii) Interest earned on the foreign contribution during the year -
(a) In the designated bank account:
(b) On investments made (Fixed Deposit Receipt etc.) during the year or in the
preceding years:
2. Purpose(s) for which foreign contribution has been received and utilized:
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
Sl.
Purpose(s)
No.
1
2
Previous balance
In cash
3
In kind
4
Receipts during the year
As first recipient As second/Subse-
quent recipient
In cash In kind In cash In kind
5
6
7
8
1. Celebration of national events
(Independence / Republic day)/
festivals etc.
2. Theatre / Films.
3. Maintenance of places of
historical and cultural
importance.
4. Preservation of ancient / tribal
art forms.
5. Research.
6. Cultural shows.
7. Setting up and running handicraft
centre / cottage and Khadi
industry /social forestry
projects.
8. Animal husbandry projects.
9. Income generation projects /
schemes.
10. Micro-finance projects,
including setting up banking co-
operatives and self-help groups.
11. Agricultural activity.
12. Rural Development.
13. Construction and maintenance
of school/college.
14. Construction and running of
hostel for poor students.
15. Grant of stipend/scholarship/
assistance in cash and kind to
poor /deserving children.
16. Purchase and supply of
educational material – books,
notebooks etc.
17. Conducting adult literacy
programs.
18. Education / Schools for the
mentally challenged.
19. Non-formal education projects /
coaching classes.
20. Construction / Repair /
Maintenance of places of
worship.
21. Religious schools / education of
priests and preachers.
22. Publication and distribution of
religious literature.
Utilized
(in rupees)
Balance
Total
9
In cash In kind
10
11
In cash In kind
12
13
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POPULATION FOUNDATION OF INDIA
1
2
3
23. Religious functions.
24. Maintenance of priests /
preachers / other religious
functionaries.
25. Construction / Running of
hospital /dispensary / clinic.
26. Construction of community halls etc.
27. Construction and Management
of old age home.
28. Welfare of the aged / widows.
29. Construction and Management
of Orphanage.
30. Welfare of the orphans.
31. Construction and Management
of dharamshala / shelter.
32. Holding of free medical/health/
family welfare/immunization
camps.
33. Supply of free medicine, and
medical aid, including hearing
aids, visual aids, family planning
aids etc.
34. Provision of aids such as
Tricycles, calipers etc. to the
handicapped.
35. Treatment/Rehabilitation of
persons suffering from leprosy.
36. Treatment / Rehabilitation of
drug addicts.
37. Welfare / Empowerment of women.
38. Welfare of children.
39. Provision of free clothing / food
to the poor, needy and destitute.
40. Relief / Rehabilitation of victims
of natural calamities.
41. Help to the victims of riots /
other disturbances.
42. Digging of bore wells.
43. Sanitation including community
toilets etc.
44. Vocational training – tailoring,
motor repairs, computers etc.
45. Awareness Camp / Seminar /
Workshop / Meeting /
Conference.
46. Providing free legal aid /
Running legal aid centre.
47. Holding sports meet.
48. Awareness about Acquired
Immune Deficiency Syndrome
(AIDS)/ Treatment and
rehabilitation of persons
affected by AIDS.
4
5
6
7
8
9
10
11
12
13
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
1
2
3
49. Welfare of the physically and
mentally challenged.
50. Welfare of the Scheduled Castes.
51. Welfare of the Scheduled Tribes.
52. Welfare of the Other Backward
Classes.
53. Environmental programs.
54. Survey for socio-economic and
other welfare programs.
55. Establishment expenses -
(i) Asset building:
(a) Establishment of Corpus
Fund, and
(b) Purchase of land:
(ii) Construction/Extension/
Maintenance of office,
administrative and other buildings
(iii) Salaries/honorarium:
(iv) Publication of newsletter/
literature/books etc:
(v) Other expenses:
56. Activities other than those
mentioned above (Furnish details).
Total
4
5
6
7
8
9
10
11
12
13
Caution: Submission of false information or concealment of material facts shall attract the relevant provisions of the Foreign Contribution (Regulation) Act, 1976,
warranting appropriate action.
3. Name and address of the designated branch of the bank and account number (as specified in the application for registration / prior permission or permitted by the
Central Government).
A/c No:
Bank:
Branch:
Address:
4. Donor wise receipt of foreign contribution:
Sl. No.
1
Institutional/individual/other donors
2
(i) Institutional donors
(ii) Individual donors above Rupees one lakh
(iii) Individual donors below Rupees one lakh
(Only Column 4 and 6 need to be filled)
Name(s) and address(es)
3
Purpose(s)
4
Date and Month of receipt
5
Amount
6
Total
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POPULATION FOUNDATION OF INDIA
4. Country wise receipt of foreign contribution:
Sl. No.
1
Name of the country
2
Amount
3
Total
Declaration
I hereby declare that the above particulars furnished by me are true and correct. I also affirm that the foreign contribution has been utilized for the purpose(s)
for which the association has been registered / prior permission obtained, to the best of my knowledge. I have not concealed or suppressed any fact.
Place:
Date:
Signature of the Chief Functionary
(Name of the Chief Functionary
and Seal of the Association)
(Certificate to be given by Chartered Accountant)
I/We have audited the account of _______________________________________________________________
______________________________________________________________________________________
(name of association and its full address including State, District and Pin Code, if registered society, its registration number and State of registration) for the year
ending 31st March____________ and examined all relevant books and vouchers and certify that according to the audited account:
(i) the brought forward foreign contribution at the beginning of the year was Rs _________;
(ii) foreign contribution of/worth Rs_________ was received by the Association during the year ________;
(iii) the balance of unutilized foreign contribution with the Association at the end of the year________ was Rs _________________;
(iv) Certified that the Association has maintained the accounts of foreign contribution and records relating thereto in the manner specified in section 13 of the
Foreign Contribution (Regulation) Act, 1976 read with sub-rule (1) of rule 8 of the Foreign Contribution (Regulation) Rules, 1976.
(v) The information in this certificate and in the enclosed Balance Sheet and Statement of Receipt and Payment is correct as checked by me/us.
Place:
Date:
(Notified in the Gazette of India Extraordinary vide GSR 557(E) dated 26th July 2001)
Signature of Chartered Accountant
With Seal, Address and
Registration number.
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ii. foreign contribution by a candidate for
election, referred to in sub-section (2) of
Section 6, shall be given in Form FC-4
within fifteen days from the date on which
he is duly nominated as a candidate for
election;
iii. any scholarship, stipend or any payment
of a like nature, from any foreign source
in relation to which an intimation is
required to be given under sub-section (1)
of Section 7, shall be given in Form FC-
5, within thirty days of receipt of such
scholarship, stipend or payment of a like
nature. Where the person receiving the
scholarship, stipend or any payment of a
like nature is residing outside India, the
intimation shall be given within sixty days
from the date of receipt of such
scholarship, stipend or other payment of
a like nature;
iv. foreign hospitality, referred to in the
proviso to Section 9, shall be given on
plain paper within thirty days from the
date of receipt of such hospitality
specifying the particulars as to the receipt
of such hospitality and the source from
which and the manner in which such
hospitality was received.
Intimation of receipt of scholarship,
stipend or any payment of a like
nature, when not necessary
It shall not be necessary for a citizen of
India to give any intimation regarding receipt
of scholarship, stipend or any payment of a
like nature from any foreign source, if the
value of such scholarship, stipend or other
payment does not exceed, during the academic
year, rupees thirty six thousand.
In calculating the value, the amount received
by the citizen for the 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 towards 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.
Authority to whom an application or
intimation to be sent
Any application or intimation referred to
above, as the case may be, shall be made or
given to the Secretary to the Government of
India, the Ministry of Home Affairs, New
Delhi, and such application or intimation shall
be sent by registered post.
Manner of service of prohibitory
order or any other order or direction
A prohibitory order under Section 12 or any
other order or direction made or issued under
the Act, shall be served on the person concerned
in the following manner that is to say:
i. by delivering or tendering it to that person
or to his duly authorized agent; or
ii. by sending it to him by registered post
with acknowledgement due to the address
of his last known place of residence or
the place where he carries on, or is known
to have last carried on, business, or the
place where he personally works for gain
or is known to have last worked for gain,
and in case the person is an organization
or an association, to the last known
address of the office of such
organization or association;
iii. if it cannot be served in any of the
manner aforesaid, by affixing it on the
outer door or some other conspicuous part
of the premises in which that person
resides, or carries on, or is known to have
last carried on, business or personally
works for gain, or is known to have last
worked personally for gain, and in case
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POPULATION FOUNDATION OF INDIA
the person is an organization or an
association, on the outer door or some
other conspicuous part of the premises in
which the office of that organization or
association is located, or is known to have
been last located, and the written report
whereof should be witnessed by at least
two persons.
Maintenance of Accounts
A separate set of accounts and records
shall be maintained, exclusively for foreign
contribution received and utilized:
i. in Form FC-6, where the foreign contribution
relates only to articles as referred to in item (i)
of sub-clause (c) of clause (1) of Section 2;
ii. in the cash book and ledger account on
double entry basis, where the foreign
contribution relates to currency received
and utilized, and a separate bank account
shall be maintained in respect of such
contribution;
iii. in Form FC-7, where the foreign
contribution relates to foreign securities.
Every account shall be maintained on an yearly
basis, commencing on the 1st day of April each
year and every such yearly account, duly certified
by a chartered accountant in Form 2 [FC-3 along
with a Balance Sheet and a Statement of Receipt
and Payment], shall be furnished, in duplicate, to
the Secretary to the Government of India, the
Ministry of Home Affairs, New Delhi within 120
days of the closure of the year.
Limits up to which an officer, not below
the rank of an Assistant Sessions Judge, may
make adjudication of confiscation.
An officer may adjudge confiscation in
relation to any article or currency seized under
Section 16, if the value of such article or the
amount of such currency exceeds one
thousand rupees but does not exceed fifty
thousand rupees.
The Foreign Contribution
(Acceptance or Retention of Gifts or
Presentations) Regulationsz, 1978
Regulation of acceptance or retention of
foreign contribution by way of gift or
presentation.
Any person specified in Section 4
(candidates for election, etc.) of the Act, who
is a member of any Indian delegation may
accept any foreign contribution by way of a
gift or a presentation made to him as a member
of such delegation (hereinafter referred to as
such person), subject to the provisions of this
regulation.
Where such person receives any foreign
contribution by way of a gift or a
presentation, he shall, within thirty days of the
receipt thereof, intimate to the Secretary to
the Government of India, the Ministry of
Home Affairs, the Ministry of External Affairs
and the Ministry or the Department of the
Government of India sponsoring the
delegation of which he is a member, in
writing-
i. the fact of his having received such gift
or presentation,
ii. the foreign source from which it is
received,
iii. its approximate market value in the
country of origin,
iv. the place in which, and the date on which,
it is received, and
v. such other details relating thereto as he
may, in the circumstances, consider
appropriate.
In a case, where such person received gift
or presentation while visiting any foreign
country or territory outside India, such
intimation may be made by him within thirty
days from the date of his return to India.
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Every gift or presentation received by such
person from any foreign source shall be
deposited by him, with the Secretary to the
Government of India in the Ministry or the
Department, which had sponsored the
delegation of which he was the member,
within thirty days from the date of intimation
by him of such receipt.
The Secretary to the Government of India
shall forward every such gift or presentation
deposited with him to the Toshakhana in the
Ministry of External Affairs for assessment of
its market value in the country of origin. Such
assessment shall be made within thirty days from
the date of receipt of the gift or presentation
in the Toshakhana, in accordance with the rules
applicable, for the time being in force, to the
valuation of articles in the Toshakhana, and such
person shall be intimated in writing of such
assessment forthwith.
If any question arises relating to the
assessment so made, it shall be referred to the
Central Government, who shall decide the same.
Every such gift or presentation, the market
value in the country of origin of which, as
assessed, does not exceed three thousand
rupees, shall be returned to such person for
retention by him.
Where more than one such gift or
presentation is received by such person while
he is in one delegation, such person be entitled
to retain only one such gift or presentation.
Every such gift or presentation, the market
value in the country of origin of which, as
assessed, exceeds three thousand rupees, shall
be retained in the Toshakhana. Such person
shall have the option (to be exercised by him
within thirty days from the date of receipt by
him of the intimation) to purchase such gift
or presentation on payment of the difference
between the market value in the country of
origin of such gift or presentation, as assessed,
and three thousand rupees. The option once
exercised shall be final.
INCOME TAX
Registration with Income Tax
Authorities as Charitable Trust or
Institution
• After the registration as a society, trust or
a Section 25 company, the charitable
institution has to apply for registration
with the Income Tax Authorities. Only
upon the registration being granted under
Section 12A, the income of the charitable
institution would be exempt from tax.
• The application for registration has to be
made in Form 10A in duplicate to the
Chief Commissioner or Commissioner
before the expiry of one year from the
date of formation of the trust or the
establishment of the institution.
Registration under Section 80G of
Income Tax Act
• The registration of charitable institution
under Section 80G(5)(vi) gives tax benefit
to the donor subject to a maximum of
50% donation, which is approved under
this section.
• The application for approval has to be
made to the Commissioner of Income
Tax having jurisdiction over the institution
or fund in Form 10G in triplicate.
• The application completed in all aspects
should be accompanied with the following
documents:
a) Objectives of the institution/fund
and geographical area in which the
activities are undertaken.
b) List of trustees, Managing
Committee members or the
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POPULATION FOUNDATION OF INDIA
Directors, as the case may be, giving
their names, designation and
addresses.
c) A copy of registration granted under
Section 12A.
d) A copy of notification if any, issued
under Section 10(23) or Section
10(23C).
e) Notes on activities of the institution
or fund since its inception or during
the last three years, whichever is less.
f) Copies of accounts of the institution
or fund since its inception or for the
last three years, whichever is less.
• Though no time limit has been prescribed
for submitting this application, the
institution/fund should, in the mutual
interest of both, itself and the donors,
submit the application as soon as it is
formed or renewal is due.
• The Commissioner shall pass the Order
granting or refusing registration within six
months from the date on which the
application is made.
• The approval so granted by the
Commissioner is for specific period as
mentioned in the Order passed by him
and requires renewal for which same
procedure has to be followed when
renewal becomes due.
Assessment Year [Section 2(9)]:
Assessment year means the period of 12
months commencing on the first day of April
and ending on the last day of March every
year. It is, therefore, the period starts from
1st of April to 31st March. The tax is levied
in each assessment year, with respect to or on
the total income earned by the assessee in the
previous year.
Previous Year [Sections 2(34) & 3]:
As per Section 2(34) previous means the
previous year defined in Section 3. According
to Section 3, previous year means the financial
year immediately succeeding financial year,
which is called the assessment year. Therefore,
the income earned during the previous year
(1.4.2006 to 31.3.2007) will be assessed or
charged to tax in the assessment year 2007-
08.
OBLIGATIONS OF TAX
DEDUCTED AT SOURCE
• Charitable institutions whether registered
as Trust, Society or section 25 company
are also responsible for Tax Deducted at
Source (TDS).
• Application to the Income Tax Officer,
for Tax Deduction Account Number
(TAN) has to be made in duplicate along
with a copy of Trust Deed/
Memorandum of Associations and a copy
of Registration Certificate or Certificate
of Incorporation.
• TAN is required for different types of tax
deductions at source.
• TAN is required to be quoted on all
challans, returns, TDS certificates and
correspondence with the Income Tax
Department.
• TAN consists of 8 digits. There is a
bracket ( ) after last alphabet, which
should be filled up with either (S) for
salary, (C) for Contractors, (I) for Interest
Payment or (F) for Other Payments.
• Failure to apply for or quoting wrong
TAN may attract penalty upto Rs. 5000/-
for each default.
• Tax is required to be deducted at source
at the time of payment or credit,
whichever is earlier.
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FUNDAMENTALS OF ACCOUNTING: A MANUAL FOR NGOS
Deduction of Tax from Salary
(Section 192):
Any person responsible for paying any
income chargeable under the head 'Salaries'
shall, at the time of payment, deduct income
tax on the estimated income of the employee
under the head "Salaries" for that financial year.
In case of salaries, the liability to deduct
tax arises only at the time of payment. Where
during the financial year, an assessee:
(a) is employed simultaneously under more
than one employers or
(b) has changed the employment during
the previous year, may furnish to the employer
his choice or the subsequent employers such
details of salaries due or received by him from
other employers, the tax deducted at source
and other details, as may be prescribed in
Form 12B.
Relief under Section 89(1): Where the
assessee is a government servant or an
employee in a company, cooperative society,
local authority, university, institution,
association or body, he may furnish to his
employer such particulars in Form 10E, if he
is entitled to relief under Section 89(1).
The loss from house property may be
adjusted against income from salary for TDS
purposes.
Payment to Contractors and Sub-
contractors (Section 194C):
Advertising, broadcasting and telecasting
including production of programmes,
carriage of goods and passengers by any
mode other than railways, catering,
payments to clearing and forwarding agents,
couriers, contract labour suppliers,
maintenance contractors, electricians, etc. fall
within the definition of Contractors and
TDS is required to be deducted from their
payment.
The payment made to travel agent or an
airline for purchase of a ticket does not require
TDS. No tax is required to be deducted at
source in respect of a contract, the
consideration of which does not exceed Rs.
20000/-. Tax is required to be deducted either
at the time of credit or at the time of payment,
whichever is earlier.
The TDS deducted is to be deposited to
the Central Government Account upto 7th
of next month.
It is mandatory to mention TAN and PAN
numbers of the institution and PAN number
of the payee on the TDS Certificate. Form
16A is to be issued to the payee for Tax
Deducted at Source.
Rate of TDS: As applicable from time
to time. Currently the rate of TDS is 1%
(plus surcharge if any and Education cess @
2%) in case of advertising and 2% (plus
surcharge if any and 2% Education cess) in
other cases.
TDS on Fees for Professional or
Technical Services (Section 194J):
Professional fees means the services
rendered by a person in the course of carrying
on legal, medical, engineering, architecture, the
profession of accountancy, technical
consultancy or interior decoration etc.
Fees for technical services means any
consideration including any lump sum
consideration for rendering of any
managerial, technical or consultancy services
including the provision of services of technical
or other personnel.
Tax is required to be deducted at source
either at the time of credit or at the time of
payment, whichever is earlier.
Rate of TDS: As applicable from time to time.
Currently the rate of TDS is 5% on such income
plus surcharge, if any and Education cess.
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POPULATION FOUNDATION OF INDIA
TDS on Rent (Section 194I):
Rent means any payment by whatever
name called, under any lease, sub-lease,
tenancy or any other agreement or
arrangement for use of any land or building,
together with furniture, fittings and the land
appurtenant thereto, whether or not such
building is owned by the payee.
Payment towards non-refundable security
deposit and advance rent is also considered
as rent for the purpose of TDS.
No tax is required to be deducted at source
in respect of rent, if the payment during the
financial year does not exceed Rs. 120000/-.
Rate of TDS: As applicable from time to
time. Currently
(a) Where the payee is an individual or a
HUF, TDS @ 15% plus surcharge, if any
and education cess.
(b) Where the payee is any other person, TDS
@ 20% plus surcharge and education
cess.
REFERENCES
Grewal T.S, Double Entry Book Keeping, Sultan Chand & Sons, New Delhi, 2003\\
Gupta K.N., Manual of Financial Management and Legal Regulations, Financial Management
Services Foundation, 2001
Maheshwari S.N. and Maheshwari S.K., Advance Accounting, Vikas Publishing House, New
Delhi, 2003
Pinto Martin P., Financial Management, Norwegian Agency for Development Cooperation,
New Delhi, 2003
Shukla M.C, Advance Accounts, Volume I, Sultan Chand & Sons, New Delhi, 2004
Shukla M.C, Advance Accounts, Volume II, Sultan Chand & Sons, New Delhi, 2004
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