NGO Accounting in Tally Prime – Complete Practical Guide
Non-Governmental Organizations (NGOs) play a crucial role in social development, education, healthcare, and welfare activities. Unlike business entities, NGOs do not work for profit. Therefore, NGO accounting follows a different structure and reporting format.
Using Tally Prime, NGOs can maintain accurate books of accounts, track donations and grants, comply with statutory requirements, and prepare final accounts with transparency.
This article explains NGO Accounting in Tally Prime in a step-by-step, practical manner, covering accounting principles, ledger creation, voucher entries, and final reports.
Understanding basic accounting principles is essential before NGO accounting.
What Is NGO Accounting?
NGO accounting is a system of recording, classifying, and summarizing financial transactions of trusts, societies, and charitable institutions.
The objective of NGO accounting is:
To show proper utilization of funds
To maintain donor transparency
To comply with Income Tax and regulatory norms
Key Difference from Business Accounting
| Basis | Business Accounting | NGO Accounting |
|---|---|---|
| Objective | Profit | Service |
| Final Account | Profit & Loss A/c | Income & Expenditure A/c |
| Capital | Capital Account | Capital Fund |
| Income | Sales | Donations / Grants |
| Owners | Proprietor/Shareholders | Trustees / Members |
Types of NGOs Covered in Tally Prime
You can use Tally Prime for accounting of:
Charitable Trusts
Registered Societies
Section 8 Companies
Religious Institutions
Educational NGOs
Important Accounting Concepts in NGOs
1. Capital Fund
The Capital Fund represents the accumulated surplus of an NGO.
It increases with surplus and decreases with a deficit.
2. Corpus Donation
Corpus donations are received for a specific purpose and cannot be used freely.
These amounts appear as liabilities and are not treated as income.
3. General Donation
General donations are unrestricted and treated as income in the Income & Expenditure Account.
4. Grants
Grants may be:
Specific grants (for a particular project)
General grants
Unutilized specific grants remain a liability.
How to Set Up NGO Accounting in Tally Prime
Step 1: Create an NGO Company
Open Tally Prime
Select Create Company
Enter NGO Name, Address, and Financial Year
Choose Accounts Only (Inventory not mandatory for most NGOs)
Step 2: Create Required Ledger Accounts
Capital & Funds
Capital Fund
Corpus Fund
Building Fund / Project Fund
Income Ledgers
Donation (General)
Grant Income
Membership Fees
Subscription Income
Expense Ledgers
Salary
Rent
Electricity
Office Expenses
Program Expenses
Assets
Cash
Bank
Furniture
Building
Voucher Entries – Practical Examples
Example 1: General Donation Received in Cash
Example 2: Corpus Donation Received via Bank
(Not treated as income)
Example 3: Salary Paid
Example 4: Grant Received for Specific Project
Example 5: Utilization of Grant
Final Accounts of an NGO
1. Receipts and Payments Account
Summary of cash and bank transactions
Prepared on cash basis
Includes both capital and revenue items
2. Income and Expenditure Account
Similar to Profit & Loss Account
Prepared on accrual basis
Shows surplus or deficit
3. Balance Sheet
Includes:
Capital Fund
Corpus Fund
Fixed Assets
Loans & Liabilities
Closing balances
Watch our Complete NGO Accounting Video Tutorial in Tally Prime.
Taxation and Legal Compliance (Section 12A & 80G)
Running an NGO requires strict adherence to Income Tax laws. Two registrations are vital:
Section 12A / 12AB: This registration allows the NGO's income to be exempt from Income Tax.
Section 80G: This benefits the donor. If an NGO has an 80G registration, the donor can claim a tax deduction on the donation amount.
Note on Profit: While an NGO can earn a surplus (income exceeding expenditure), distributing this profit to members or trustees is strictly prohibited.
Is GST Applicable to NGOs?
Many accountants find this confusing. Here is the simple rule:
- Pure Donation: If you receive a donation without providing any service in return, GST does not apply.
- Service Provided: If the NGO charges for services (e.g., training fees, renting premises, selling event tickets), GST may apply, subject to turnover limits and specific exemptions.
CRITICAL: Cash Transaction Limits for NGOs
This is the most dangerous area for NGO accountants. Violating these rules can lead to heavy penalties.
Rule #1: Cash Donation Limit (Section 80G)
If an NGO accepts a cash donation exceeding ₹2,000, the donor cannot claim the Section 80G deduction.
Example: A donation of ₹1,500 in cash is allowed for 80G. A donation of ₹5,000 in cash is not allowed for 80G benefit.
Rule #2: Cash Receipt Limit (Section 269ST)
An NGO cannot receive ₹2,00,000 (2 Lakhs) or more in cash from one person in a single day or for a single transaction.
Penalty: If you violate this, the penalty is 100% of the amount received.
Rule #3: Cash Expense Limit (Section 40A(3))
If the NGO makes a cash payment for expenses exceeding ₹10,000 in a single day to a single person, that expense will be disallowed (taxable).
Example: Paying ₹15,000 Rent in cash is not allowed. It must be paid via Bank/Cheque.
Best Practices for NGO Accounting in Tally Prime
✅ Maintain separate ledgers for each fund
✅ Track project-wise income and expenses
✅ Avoid mixing corpus and general funds
✅ Reconcile bank statements regularly
✅ Preserve vouchers and donor receipts
Why Tally Prime Is Ideal for NGO Accounting
Easy ledger and voucher management
Accurate final accounts
Customizable reporting
Suitable for trusts, societies, and institutions
Widely accepted by auditors and authorities
Conclusion
NGO Accounting in Tally Prime ensures transparency, compliance, and proper utilization of funds. By following correct accounting principles and maintaining structured ledgers, NGOs can confidently manage donations, grants, and expenses while meeting audit and regulatory requirements.
Whether you are a student, an accountant, or an NGO office bearer, mastering NGO accounting in Tally Prime is an essential skill in today’s compliance-driven environment.
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