Posts tagged: Online Accountant for Society

n India, societies play a crucial role in areas like education, culture, public health, and social services, operating as non-profit organizations aimed at public welfare. As entities formed for charitable or public service purposes, societies need to maintain transparent and accurate financial records to uphold public trust and meet legal requirements. This blog outlines the essentials of accounting and bookkeeping for societies in India, covering the applicable laws, compliance requirements, and best practices.

Understanding Societies and Their Purpose

A society is an association of individuals with shared goals, established for charitable, educational, scientific, or social purposes. Societies are typically registered under the Societies Registration Act, 1860, or corresponding state laws, which provide them with a legal status and eligibility for certain benefits, including tax exemptions. Proper accounting and bookkeeping practices are essential for societies to demonstrate accountability, comply with statutory requirements, and ensure that resources are allocated effectively to fulfill their mission.

Key Aspects of Accounting and Bookkeeping for Societies

1. Fund Accounting: Societies often follow fund accounting to track donations, grants, and funds allocated for specific purposes, such as educational programs, healthcare, or research projects. This approach ensures that funds are utilized as intended and enhances transparency.
2. Income and Expense Tracking: Societies must document all income sources, including donations, grants, membership fees, and service fees, while keeping accurate records of expenses for various projects, administration, and maintenance.
3. Asset and Liability Management: Societies may own assets such as land, buildings, and equipment. Proper tracking of these assets, along with liabilities (like loans or payables), is essential for accurate financial reporting.
4. Budgeting and Financial Planning: Budgets are crucial for societies to manage resources effectively, enabling them to plan their activities and allocate funds to achieve their objectives.
5. Financial Reporting: Societies need to prepare financial statements, such as the income and expenditure statement, balance sheet, and receipt and payment account, to give a comprehensive view of their financial activities.

Governing Acts and Laws for Societies in India

Various laws govern societies in India, impacting their registration, management, accounting, and compliance obligations. Below are the main acts and laws that affect societies and their accounting requirements:

1. The Societies Registration Act, 1860 (or State-Specific Versions)

• Applicability: This central act, or similar state-specific laws, governs societies and outlines their formation, registration, and regulation.
• Accounting Requirements: Societies must maintain accurate accounts of all income and expenditure and prepare annual financial statements.
• Annual General Meeting (AGM): Societies are required to hold an AGM to present their financial records to members and approve the financial statements.
• Filing Requirements: Societies need to file annual returns with the Registrar of Societies, which often includes financial statements and activity reports.

2. Income Tax Act, 1961

• Tax Exemptions: Societies formed for charitable, religious, or public service purposes can apply for tax exemptions under Sections 11, 12, and 13. Registration under Section 12AB is mandatory for availing income tax exemptions.
• Filing Requirements: Societies must file income tax returns in Form ITR-7. If the society qualifies for Section 80G, it can issue tax-deductible receipts to donors.
• Audit Requirement: Societies whose total income exceeds ₹2.5 lakh (before exemptions) must have their accounts audited by a Chartered Accountant under Section 12A(b).

3. Goods and Services Tax (GST) Act, 2017

• GST Registration: Societies providing taxable services or goods, such as renting out premises or offering consultancy services, must register for GST if their turnover exceeds the threshold (generally ₹20 lakh).
• GST Compliance: GST-registered societies must maintain records of taxable supplies, GST paid, and file regular GST returns (e.g., GSTR-1 and GSTR-3B).
• Accounting Requirement: Societies must keep GST-related records separate to ensure proper tax compliance.

4. Foreign Contribution (Regulation) Act, 2010 (FCRA)

• Applicability: Societies receiving foreign donations or contributions must register under FCRA and comply with its accounting requirements.
• Compliance: Societies must maintain separate books of accounts for foreign contributions, file annual returns in Form FC-4 with the Ministry of Home Affairs, and ensure that foreign funds are used only for the intended purposes.
• Audit Requirement: FCRA-registered societies must have an annual audit conducted by a Chartered Accountant to detail foreign contributions and their utilization.

Essential Bookkeeping Practices for Societies

1. Donation and Fund Management
   • Maintain a record of all donations, specifying the donor, amount, and purpose, especially if funds are designated for specific projects. Societies registered under Section 80G should issue receipts to donors for tax deduction purposes.
2. Expense Allocation
   • Properly categorize expenses to show the cost of various activities and administration separately. This enables clear reporting on how funds are allocated toward the society’s goals.
3. Asset Management
   • Keep records of all society-owned assets, including acquisition costs, depreciation, and maintenance. Asset tracking helps in managing resources effectively and is essential for accurate financial reporting.
4. Annual Financial Statements
   • Prepare the income and expenditure statement, balance sheet, and receipt and payment account. Financial statements provide a transparent view of financial activities, aid in compliance, and build trust with donors and members.
5. Periodic Audits
   • Societies with income above the audit threshold or those registered under FCRA must undergo annual audits by a Chartered Accountant. Regular audits enhance credibility and ensure adherence to legal standards.
6. Usage of Accounting Software
   • Societies can use accounting software such as Tally, QuickBooks, or Zoho Books to streamline their bookkeeping processes, automate report generation, and maintain organized records.

Compliance Checklist for Societies

1. Registration and Renewals:
   • Ensure that the society is registered with the appropriate authorities (e.g., Registrar of Societies) and renew registrations as required by the relevant state or central laws.
2. Statutory Audit:
   • Conduct an annual audit of accounts if income exceeds ₹2.5 lakh or if required under FCRA or other regulations.
3. Filing Annual Returns:
   • File annual returns and financial statements with the Registrar of Societies, as required under the Societies Registration Act.
4. Income Tax Compliance:
   • File Form ITR-7 annually with the Income Tax Department, and, if applicable, maintain compliance with Section 80G to issue tax-deductible receipts to donors.
5. FCRA Compliance (if applicable):
   • For societies registered under FCRA, maintain separate books of accounts for foreign contributions and file Form FC-4 with the Ministry of Home Affairs annually.
6. GST Compliance:
   • If the society is registered for GST, file regular returns and maintain GST-related records accurately to avoid penalties.

Conclusion

Accounting and bookkeeping for societies in India are crucial for maintaining accountability, ensuring compliance with laws, and building trust with donors and stakeholders. By adhering to the governing laws, societies can focus on fulfilling their mission while effectively managing resources. Transparent and accurate financial records help societies meet legal obligations, qualify for tax benefits, and maintain the public’s confidence.