Introduction to NGO Accounting in India
Proper NGO Accounting is the backbone of transparency, compliance, and donor confidence. In India, NGOs—including Trusts, Societies, and Section 8 Companies—must maintain accurate books of accounts and comply with provisions of the Income Tax Act, 1961, audit rules, and reporting requirements.
This Saving Mantra guide explains the step-by-step process for NGO accounting in India, from day-to-day bookkeeping to audit readiness and compliance risk management.
What Is NGO Accounting?
NGO accounting is the systematic recording, classification, and reporting of:
- Donations and grants
- Program and project expenses
- Administrative and compliance costs
- Assets, liabilities, and funds
- Restricted and unrestricted funds
Unlike commercial accounting, NGO accounting focuses on application of income rather than profit.
Why Proper NGO Accounting Is Critical
- Mandatory for income tax exemption
- Required for audit and assessments
- Builds donor and CSR credibility
- Supports 12AB, 80G, CSR, and FCRA compliance
- Prevents penalties and cancellation risks
Step-by-Step Process for NGO Accounting in India
Step 1: Identify NGO Legal Structure
Accounting treatment depends on whether the NGO is a:
- Charitable Trust
- Registered Society
- Section 8 Company
Each structure has specific reporting and compliance nuances.
Step 2: Set Up Accounting System
- Choose appropriate accounting software or manual system
- Define chart of accounts (income, expenses, assets, liabilities)
- Decide accounting method (cash or accrual)
A structured setup ensures long-term compliance.
Step 3: Maintain Proper Books of Accounts
Daily bookkeeping should include:
- Cash book
- Bank book
- General ledger
- Donation and grant registers
- Expense vouchers and bills
All entries must be supported with documentation.
Step 4: Segregate Funds Properly
NGOs must clearly separate:
- Restricted funds (project-specific grants)
- Unrestricted funds (general donations)
- Corpus funds (if any)
Improper fund mixing is a common compliance risk.
Step 5: Record Income Correctly
Income sources may include:
- Voluntary donations
- CSR contributions
- Government or private grants
- Membership fees
- Interest and other income
Donations must be recorded donor-wise and purpose-wise.
Step 6: Track Program & Administrative Expenses
Expenses should be classified into:
- Program/project expenses
- Administrative expenses
- Capital expenditure
Project-wise accounting is essential for donor and CSR reporting.
Step 7: Bank Reconciliation & Controls
- Reconcile bank statements monthly
- Monitor authorized signatories
- Maintain internal controls and approvals
Strong controls reduce fraud and audit issues.
Step 8: Prepare Financial Statements
At year-end, prepare:
- Receipts & Payments Account
- Income & Expenditure Account
- Balance Sheet
These statements form the basis for audit and tax filings.
Step 9: Audit & Compliance Readiness
Most NGOs require audit when income exceeds prescribed limits. Accounting must support:
- Statutory audit
- Income tax audit (if applicable)
- CSR or donor audits
Clean books simplify audit and reduce scrutiny.
Step 10: Income Tax & Reporting Linkages
Accounting data is used for:
- Income tax return filing
- Form 10BD / 10BE reporting
- Compliance with conditions under Sections 11–13
Accurate accounting preserves tax exemption benefits.
Common NGO Accounting Mistakes
- Poor documentation of donations
- Mixing personal and NGO funds
- No project-wise accounting
- Delayed bookkeeping
- Ignoring internal controls
These can lead to audit qualifications or penalties.
Best Practices for NGO Accounting
- Maintain real-time books of accounts
- Use project-wise cost centers
- Conduct periodic internal reviews
- Preserve records for minimum statutory period
- Align accounting with compliance calendars
How Saving Mantra Helps NGOs
Saving Mantra provides end-to-end NGO accounting services, including:
- Accounting system setup
- Day-to-day bookkeeping
- Project-wise fund accounting
- Audit preparation and support
- Income tax and compliance integration
- Ongoing financial advisory
Disclaimer
This article is for informational purposes only and does not constitute legal, accounting, or professional advice. Accounting and compliance requirements may vary based on NGO structure and applicable laws. Readers are advised to consult qualified professionals before implementation. Saving Mantra shall not be responsible for actions taken based on this information.