Good governance holds the key to sustainability and growth of the charity sector.
Aspiration of a well-governed and thriving charity sector can be realised with good
governance encompassing transparency and accountability as key cornerstones. Thus,
Good Governance is the foundation for building trust – a key commodity for charities.
Charities differ greatly in size, activity and circumstances, however, even small charities
must have minimum and necessary benchmark for governance as their resources being
either donated or exempt from tax, which tax collection could otherwise have been used
for public good.
Charity is on the concurrent list of subjects where both the Centre and the States are
competent to legislate. They are subject to a mix of federal, state/provincial/territorial,
and local regulation. Accordingly some of the laws are Central and applicable all over
India with State amendments on these laws, while others are enacted by individual
The law concerning Societies, Trusts, Waqfs and other endowments in India can be
broadly grouped as under:
(i) Societies registered under the Societies Registration Act, 1860 and various States
amendments on it after 1947;
(ii) The Religious Endowments Act, 1863; the Charitable and Religious Trusts Act,
1920; the Waqf Act, 1995 and similar other State Acts (Those engaged in pure
religious and charitable work);
(iii) Trusts and charitable institutions registered under the Indian Trusts Act, 1882;
Charitable Endowments Act, 1890; the Bombay Public Trusts Act, 1950; and similar
other State Acts.
The article aims to provide a broad insight into the Institutional
framework for Charitable entities (“Charities”) in India and
internationally. The article also details the prevalent Anti-corruption
Framework in India and abroad. However, the anti-bribery and/or anticorruption
laws are not directly related to Charities, which lead to
malpractices and diversion of resources. The article also touches upon
the importance of Good Governance, Charity Transparency Framework
and Trends. Though Charities own huge assets and are entitled to
preferential tax treatments and exemptions the article suggests that
the Institutional Framework for governance of Charities is lax being
a concurrent subject under the Constitution of India and leaves scope
for Charities for poor governance that needs new code for governance
and administration.
In addition charitable organisations are also required to follow
the provisions of law as applicable to their functional areas like
those Charities working on environment protection will have to
abide by the Water (Prevention and Control of Pollution) Act,
1974, the Air (Prevention and Control of Pollution) Act, 1981
and the Forest (Conservation) Act, 1980, etc.
Towards the middle of the 19th century a number of organisations
and groups were established in the country on contemporary
issues of politics, literature, arts and science. Thus the above
laws were enacted partly to give such organisations a legal
standing and partly, to enable the colonial government to
maintain a watch on them. But, the laws were and still are
largely not intrusive at all and it gives full freedom to the
Societies/Charities which chose to register with the government.
Many States created separate authorities for registering and
supervising such Societies. Trusts, Endowments and Waqfs
are legally created as modes of property arrangement/
settlement dedicated for definite charitable and religious
Although all the countries particularly Australia, Canada,
Ireland, the United Kingdom (England and Wales), and the
United States share an Anglo legal tradition, the researchers
recognize there are differences of institutional framework for
Charities amongst the countries in terms of physical and
population sizes, structures of government, legal competencies
of national government and provinces/states, the sizes of
government and regulatory agencies and the structures of
administrative systems. The United Kingdom, the USA, Canada,
France and other countries of Europe have a fairly well
developed system for regulation and promotion of Charities.
In a majority of these countries, revenue officials initially decide
on the “charitable” character of an organisation. This approach
is based on the assertion that tax authority is in the best
position in determining which organisations are eligible for tax
exemption. The Charity Commission administers the Charities
Act in England and Wales. In the USA and Canada, registration
of a charity is a State responsibility but financial and tax
regulation is through the Inland Revenue, which is a federal
There is easy access to data on charities in USA, UK, Canada
and European Countries as: (i) Public Register of Charities are
established under law (ii) supply of information to regulators is
mandatory for Charity organisation and (iii) An effective
grievance redressal system is in place against action of
administrative agencies including provisions for appeals against
A brief of Charities institutional framework in major countries is
as under:
In the United States, charities are created under the State Law
but they are subject to control by both Federal and the State
Governments. The charity administration is managed at the
Federal level under the Federal Tax Code by way of preferential
tax treatment. Charities are granted tax exemption status under
the Federal Tax Code subject to organisational and operational
conditions. Organisations claiming tax exemption must adhere
strictly to their intended charitable objectives as provided in the
governing document. The Tax Code makes a distinction
between Public Charities and Private Foundations for the
purpose of regulations. The Internal Revenue Service (IRS) is
responsible for enforcing federal regulations with regard to the
administration and governance of charitable organisations.
The main piece of legislation is the Charities Act 2011, which
consolidates existing charities legislation into a single Act of
Parliament. The Charities Act, 2006 provided for the
establishment of an autonomous body called Charity
Commission to regulate and support the functioning of Charity
organisations across England and Wales, which is continuing
under the new law. There is also a Charity Tribunal to entertain
appeals against the orders of the Charity Commission.
The Charities Directorate of the Canada Customs and Revenue
Agency (CCRA) administers the Charities in Canada. The
application is reviewed by a Charities Directorate examiner
before granting registration. If an organization is registered as
a charity, its name appears on the list of charities that is
maintained on the CCRA website. Any member of the public
has the right to ask the Charities Directorate for a copy of a
registered charity’s application for registration.
In Singapore the Charities are governed by the Charities Act,
1994, as amended, which provides for appointment of
Commissioner of Charities and various provisions governing
Charities. In addition, the Charity Transparency Framework
(CTF), Singapore helps Charities enhance their disclosure and
governance practices. The CTF is a scorecard for charities’
self-assessment purposes and non-mandatory in nature. To
encourage charities to be more transparent and to recognise
charities for their disclosure efforts, the Charity Council has
introduced the Charity Transparency Awards as well.
Singapore has also established a Charity Council, which has
developed the Code of Governance in 2007, to set out
principles and best practices in key areas of governance and
management. Code has been refined in January 2011 April
2017 to provide greater clarity and relevance of good
governance to the charity sector.
Institutional framework for Charities in India, Anti-corruption Measures and Charity Transparency Framework & Trends
Since Charities’ main source of funding
is donations, grants and receipts of
such nature that are either from the
public exchequer and/or exempted
from tax liability, an effective
framework for transparency and
accountability is a must for resource
funding and its deployment.
Accordingly, Provisions on
Measurement, Reporting, and
Verification (MRV) are central to the
transparency system.
Australia Government has established a national regulatory
authority — the Australian Charities and Not-for-profits
Commission (ACNC) in 2012 — and the law for Charities
Governance in Australia is the Charities Act 2013.
Registration as a charity does not automatically confer taxdeductibility
for gifts or donations received. That coveted
privilege is restricted to organizations executing specific
categories of public benefit activities such as health, education
and welfare that have been endorsed by the Australian Tax
The status of charitable organizations is governed by the
Charities Act 2009, which replaced the previous 1961 legislation.
The 2009 Charities Act both created a legal definition of what
constitutes a charity and created the Charities Regulatory
Authority (CRA) which maintains a register of recognized
charities in Ireland. However, “charitable status” under the 2009
Act does not automatically confer tax exempt status on an
organization. Thus the various tax laws (most notably the 1997
Taxes Consolidation Act) are also relevant because they confer
the power to grant tax exemption on the grounds of charitable
status to the Irish Revenue Commissioners.
Since Charities’ main source of funding is donations, grants
and receipts of such nature that are either from the public
exchequer and/or exempted from tax liability, an effective
framework for transparency and accountability is a must for
resource funding and its deployment. Accordingly, Provisions
on Measurement, Reporting, and Verification (MRV) are central
to the transparency system. The transparency framework help
provide stakeholders with the information and feedback needed
on actual progress, improved efforts and promote efficient &
cost-effective resources deployment for larger/public good.
A robust Charity Transparency Framework helps charities
enhance their disclosure and governance practices and also
serves as a public education tool for charities and public by
highlighting key areas of disclosure that will aid in “informed
The central legal actors in this process tend to be the national
tax authorities as the main challenge for Charities/NGOs/notfor-profits
resides in the assessment of the charitable status or
eligibility for tax-exempt status. A legal obstacle to obtaining tax
exempt status resides in the outdated approach of tax authorities
to the Charities sector. The not-for-profit requirement/nature
imposed on Charities in many countries does not mean that
not-for-profit organizations are entirely precluded from engaging
in profitable activities, but limitations may be imposed.
Charitable and tax exempt status issues becoming increasingly
important due to the growing political attention on this aspect
and Governments all across will need to be attuned to the
regulatory developments surrounding them. While explicitly set
out in various legislation across the world, the framework
around charity law is progressive: what can be a charity is
subject to change, as the economic and social context shifts. It
can adapt to the contemporary values of society. The current
descriptions of charitable purposes were determined by what
the government at the time thought and reflected the popular
view. Demonstrating the public benefit of the charity’s purpose
is a crucial part of the application: it must be clearly shown and
demonstrable through description, even if non-quantifiable or
In the US, the not-for-profit sector has received a number of
designations in the last decades so as to reflect its different
dimensions and activities (e.g., philanthropic sector, private
sector, voluntary sector, and third sector). For-profit and notfor-profit
entities can both generate profits but the latter is
limited in how much profit it can generate. Not-for-profit
organizations that seek a tax-exempt status are not allowed to
use any part of its net earnings for the benefit of any private
shareholder or individual (private inurement doctrine). Taxexempt
organizations are sub-sets of not-for-profit organizations.
Although the not-for-profit sector is often associated with
charitable activities, a charitable organization is only a category
of not-for-profit organizations. Charitable organizations are subsets
of tax-exempt organizations which are eligible to receive
tax-deductible gifts.
Summarily, it can be concluded that whatever could be the form
of constitution or nomenclature of a Charities like not-for-profit
or charitable; these organizations are granted a tax-exempt or
a similar preferential tax regime and thus they must operate
exclusively or primarily to accomplish charitable or not-for-profit
activities or objects.
There are no separate laws in India to curb or check corruption
that relates to Charities. Although India has fairly stringent anticorruption
laws, the implementation of such laws, particularly in
reference to Charities has been lax. However, the political and
social climate in India in recent times sees a strong public
sentiment against corruption.
India, though, has ratified the UNCAC in 2011 and is a member
of ADB/OECD Anti-Corruption Initiative for Asia and the Pacific,
the APG and the FATF; according to the Transparency
International Corruption Perception Index, India is ranked 76
out of 167 nations. The researchers have concluded that Indian
Government, in addition to its sovereign functions, is also a
significant market player in a number of sectors. Thus, Charities
in India amongst other entities have to frequently interact with
the government at different levels as a regulator, as a donor, as
a vendor, service provider, owner of land, financial service
player, licensor etc. All of this makes India a complex regulatory
environment to operate in and this environment is seen as a
breeding ground for corruption.
There is recent trend in India particularly after laws in USA
and UK to have an Anti-Bribery and Corruption Policies
(“ABC Policies”) for all sort of organisations including NGOs/
Charities prohibiting such practices while dealing with Public
offices and/or with private parties. However, in absence of a
strong deterrent mechanism enforcing the laws for bribery
and corruption particularly for “facilitation payments” or “speed
money” is rampant in India. Though good governance is
expected of Charities, the challenges in governance of Charities
while their dealings with “Pubic offices” can also not be ignored
at the same time that needs stringent implementation of ABC
laws particularly relating to speed money.