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Can NGO Founders Draw Salary?

Narendra Kumar | Updated: Jan 09, 2018 | Category: NGO

The NGO founders can also be its trustee in accordance with the Indian Trusts Act, 1883.

Can NGO Founders draw a Salary as Trustee?

NGO stands for Non-Government Organization. A person willing to work for the charitable purpose can have
NGO Registration then only the entity can work in India. In India NGO (non-profit organizations) / public
charitable organizations i.e. NGO can be registered as trusts, societies, or a private limited non-profit company,
under ngo section-8 registration. A non-governmental organization (NGO) functions independently of government
administration, frequently to supply resources or serve some social or political purpose. In India NGO (non-profit
organizations) / public charitable organizations.

What do Income Tax Rules say about Trustee Salary in an

NGO?
The founder of a trust can also be its trustee. In accordance with the Indian Trusts Act, 1883, a trustee has no
right to compensation unless a regulation or provision for such remuneration has been laid down in the
instrument of the trust. However, if the founder of a private trust desires to earn money through a trust as its
trustee, then they must lay down express provisions for the same in the trust’s instrument. However, in case of a
public trust created for charitable and religious purposes, Section 13 (1) (c) of the Income Tax Act states that if
any part of such income or any property of the trust or the institution is used or applied, straight or indirectly for
the advantage of any person mentioned to in accordance to Section 13 (3), then the tax exemptions given to the
trust will be cancelled & it shall be treated as an ordinary Association of Persons & not as a charitable trust.
Section 13 (2) (c) states that the income or property of the trust shall be deemed to have been applied for the
benefit of a person if any amount paid as salary or allowances to the person is in excess of what would
reasonably be paid. Section 13 (3) (a) precisely comprises the author of a trust within the domain of the above-
mentioned provisions. Thus, if an inordinate and unreasonable amount of money is paid as remuneration to the
author of a public trust, then all taxation benefits extending to such trust may be revoked. Furthermore, Section
36A (4) of the Bombay Trusts Act prohibits trustees of public trusts from borrowing money for their own use from
the property of the trust. Section 41D (1) (d) of the Bombay Trusts Act empowers the Charity Commissioner to
suspend, remove or dismiss a trustee of a public trust on the ground of misappropriation of or improperly dealing
with the property of the trust.

Being NGO founders or trustee of a trust (NGO) one can draw a reasonable salary. Many social entrepreneurs
are unclear about the right to draw a salary & limited expert has knowledge about this feature of the NGO. One’s
intention should be for public interest and you cannot take benefit from NGO Registration, however, salary is not
the benefit however it is a remuneration and expenses for your dedication and skills that you are giving to the
greater public cause which if you have worked with other organization, it would have raised more income for you.
For someone to be able to contribute to social reform and services on a full-time basis, salary is essential. For
Example, the Prime Minister of any country is a social worker who takes salary however they do not take benefits
from a government scheme.

The Income-tax Department requires compensation packages for non-profit executives (and other non-profit
employees, for that matter) to be reasonable. Reasonable compensation is implicit according to the factors the
IRS examines while determining whether or not a charity is beyond reasonableness with its compensation
arrangements. These factors look something as below:-

 Actual job description

 Required level of education or experience
 Compensation averages in your area
 Number of hours worked
 The overall budget for the charity

It’s also important to note that each factor is weighted differently depending on the circumstances. It is a very
subjective exercise.

Due diligence is the brother of reasonable compensation. In order to have a compensation package considered
truly reasonable, the figure must be the result of a substantive evaluation of what makes sense for the job. That
is the responsibility of the board of directors or compensation committee. It is considered a best practice to
document the method used to determine salary packages. There are various resources that can be used to
come up with the information i.e. the labor department, census data, job-oriented websites, national & local
charities, etc. It’s best to use multiple sources. One can do all the due diligence that one wants & come up with
the nation’s most reasonable compensation package, but if the compensated executives effectively control the
mechanisms of their own pay, then trouble awaits them. For instance, if the president of the board is also the
salaried Executive Director. Which is fine, as long as the board structure & meeting minutes show arms-length.
Thus, the president enhanced refrain from discussions & votes about his/her own pay package plus, a majority of
those voting on the package better not have any relation to him/her, by blood, marriage or outside the
business. Intermediate sanctions penalties await those that chaos this part up. Non-profit executive
compensation scrutiny is not going away anytime. In fact, it is only likely to increase. If one knows the non-profit
which they are operating has problems in this area, be proactive and get it fixed immediately.

Thus to conclude one can say that Non-profit organizations have founders, not owners. The founders of a non-
profit are not admissible to make a profit or advantage from the net earnings of the organization. They can create
money in several additional ways, however, including receiving compensation from the non-profit. State law
(which governs your non-profit incorporation) and the IRS (which regulates your tax-exempt status) allows a non-
profit to pay reasonable salaries to officers, employees, or agents for services rendered to further the non-profit
corporation’s tax-exempt purposes. Indeed, most non-profits have staff.