Are Charitable Trusts, Societies and NGOs Really Working for Charity?

Charitable trusts, registered societies, Section 8 companies and other non-governmental organisations can provide essential services in education, healthcare and public welfare. Yet charitable status does not, by itself, prove that an organisation uses donations responsibly or treats its employees fairly. Donors, workers and regulators should assess actual conduct, financial transparency and legal compliance.

1. What are charitable trusts, societies and Section 8 companies?

A charitable trust holds property for stated charitable purposes under its trust instrument and applicable law. A society is an association registered under the Societies Registration Act, 1860 or relevant state legislation. A Section 8 company is incorporated under Section 8 of the Companies Act, 2013 to promote objects such as education, social welfare, charity, science or environmental protection, and must apply its profits or other income towards its objects rather than paying dividends to members. The earlier expression Section 25 company refers to the corresponding framework under the Companies Act, 1956.

The legal form and regulatory obligations vary. Educational institutions are not universally required to operate only through one of these three forms; the applicable education, professional and state laws determine eligibility and conditions.

2. Can a charitable organisation earn a surplus?

Yes. A surplus is not automatically unlawful, and it does not alone establish that an institution is conducting a commercial business or diverting charitable funds. What matters is whether receipts, fees, investments and expenditure comply with the organisation's governing documents, regulatory conditions and tax law. An institution may retain funds for facilities, salaries, scholarships, infrastructure and future programmes, subject to the applicable rules.

For eligible entities, Sections 11 and 12 of the Income-tax Act, 1961 provide exemptions subject to conditions. Section 11(1) generally requires application of at least 85% of eligible income for charitable or religious purposes in India, subject to statutory exceptions; Section 11(2) permits accumulation for specified purposes for up to five years where its requirements are met. Section 12AB governs registration procedures, Section 13 limits exemption in specified circumstances, and Section 80G concerns qualifying donation deductions. These provisions are subject to amendments and transition rules, including the applicable law for the relevant tax year.

Official resources: Income Tax Department, India Code legislation database and Ministry of Corporate Affairs.

3. Employee rights and gratuity in charitable institutions

Charitable status does not create a blanket exemption from labour laws. Depending on coverage, eligible employees may be entitled to provident fund contributions, social security, minimum wages, gratuity and other statutory benefits. An employer cannot lawfully avoid accrued obligations merely by moving an employee between related entities on paper; however, continuity of service and the identity of the employer must be established from the facts and governing law.

The original account underlying this article described an employee who worked for approximately 17 years in educational institutions operated through charitable entities. The employee alleged that transfers between organisations resulted in non-payment of gratuity for seven years and that the remaining ten years were calculated using a divisor of 30 rather than 26. These are the author's reported experiences, not independently verified findings against any identified institution.

Under the Payment of Gratuity Act, 1972, Section 4(2), the standard formula for a monthly-rated employee is last drawn wages × 15 ÷ 26 × completed years of service, with a part of a year exceeding six months generally counted as a completed year. Statutory definitions, ceilings, exclusions, continuity rules and any subsequently commenced labour-code provisions must be checked for the relevant date. Section 7 deals with determination and payment of gratuity and related disputes. The appropriate controlling authority or labour department can advise on an individual claim.

Official resource: Ministry of Labour and Employment.

4. Fees charged by educational institutions

Management institutes, engineering colleges and other educational institutions may generate substantial receipts. Fee-setting powers are not unlimited: applicable state fee regulation laws, admission rules, affiliation conditions and professional regulatory requirements may restrict charges or prohibit capitation fees and profiteering. The rules differ by state, course and type of institution.

Higher fees alone do not demonstrate misuse of charitable status. A more useful assessment examines published fee schedules, audited accounts, scholarships, related-party transactions, staff remuneration, service quality and compliance with regulator directions.

Relevant official sources include the All India Council for Technical Education and University Grants Commission.

5. Donation appeals and possible fundraising abuse

Some NGOs raise funds through telephone calls, online campaigns and appeals for urgent medical treatment. Such fundraising is not inherently improper, and legitimate organisations may incur disclosed administrative or fundraising costs. However, false medical claims, fabricated beneficiaries, misleading photographs or unauthorised diversion of donations may raise serious legal issues.

The original article described a donation made towards a child's operation. According to the author's account, the same appeal and photograph remained on an NGO website about six months later. When contacted, representatives reportedly said the website had not been updated and acknowledged paying commissions to fundraising agents. This anecdote raises questions worth checking, but an unchanged webpage or payment of commission does not by itself establish fraud.

6. How to verify a charity before donating

1. Confirm the entity's exact legal name, registration number, registered address and governing body.
2. Check relevant registration information through the MCA for companies or the competent state authority for trusts and societies.
3. Ask for recent audited financial statements, annual reports, programme outcomes and details of administrative or fundraising expenditure.
4. Where a tax deduction is promised, verify the entity's Section 80G approval and request the prescribed donation documentation.
5. For medical appeals, seek consent-based verification of the hospital, treatment estimate and whether the requested amount remains outstanding.
6. For foreign contributions, consult the FCRA online portal. FCRA registration or prior permission, where applicable, does not by itself guarantee that a campaign is genuine.
7. Pay through traceable channels to the verified organisation rather than an unverified personal account, and retain receipts.

7. Transparency, accountability and remedies

Section 8 of the Companies Act, 2013 governs companies formed for charitable and similar purposes. Section 166 sets out directors' duties, while provisions governing accounts, audit and filings may apply according to the entity's status. Trusts and societies are subject to their respective governing laws. Where relevant, the Foreign Contribution (Regulation) Act, 2010 regulates acceptance and use of foreign contributions.

Suspected diversion of funds should be documented and reported to the competent registrar, tax authority, police or other regulator as appropriate. Employment grievances should be raised through the applicable labour mechanism. Claims should distinguish suspicion from established misconduct and preserve records such as receipts, correspondence, employment documents and financial statements.

Conclusion

Charity and financial sustainability can coexist. The concern is not whether an NGO, trust, society or Section 8 company earns a surplus, but whether it pursues its stated objects, accounts for its resources, complies with the law and treats donors, beneficiaries and employees fairly. Careful verification protects donors while recognising the important work of legitimate charitable organisations.

Legal information reflects the general Indian framework as of October 2026. Commencement, transition and tax-year-specific provisions must be checked against official notifications before relying on any particular rule.