Most people give money to a charity the way they tip a waiter — quickly, on instinct, and without ever looking at the bill. Then, months later, a news story breaks about some organisation somewhere that spent donor money badly, and the instinct hardens into suspicion. The suspicion is fair. What is unfair is that almost nobody has ever been taught how to check.
Indian non-profits are, in fact, among the more heavily regulated institutions in the country. A registered charity that takes tax-deductible gifts and foreign contributions files more paperwork than most small businesses. The catch is that this paperwork is written in a language — corpus, accumulation, revenue expenditure, unmodified opinion — designed for auditors and assessing officers, not for a schoolteacher in Sector 62 deciding whether to give five thousand rupees.
This is a working guide to reading any Indian NGO's accounts and compliance file, written by people who have sat through many audits from the other side of the table. If it teaches you to ask us harder questions, that is the point — our own audited financial statements are published for exactly this kind of scrutiny.
Why "how much goes to admin?" is the wrong first question
It is the question every donor asks, and it feels rigorous. It isn't. The overhead ratio — administrative cost as a percentage of total spend — is one of the least reliable numbers on a non-profit's statements, for a simple reason: there is no single enforced standard in India for what counts as "administration" versus "programme".
Two honest organisations doing identical work can report wildly different ratios purely from how they allocate a field officer's salary, a rented training hall, or the cost of tracking whether children actually stayed in school. One books the monitoring officer as programme cost. One books her as overhead. The second now looks worse and is, in reality, better managed.
The ratio is also trivially easy to flatter. An organisation that never invests in accounting staff, never audits its own field data and never pays a market salary will post a beautiful overhead number right up until the day it collapses.
A low overhead ratio tells you what an organisation spends on itself. It tells you nothing whatsoever about whether anything changed for the people it exists to serve.
Better questions to ask instead
- What did this organisation set out to change, and how does it know whether it did? Ask for the outcome, not the activity. "We ran 40 workshops" is an activity. "31 of 40 girls we enrolled were still in school 18 months later" is an outcome.
- Is income concentrated in one or two donors? A charity where a single grant is most of the budget is one funder's board meeting away from shutting a programme.
- Are the accounts audited, signed, dated and actually published — or only available "on request"?
- Do the numbers reconcile with the story? If the website describes a large skilling operation and the Income & Expenditure Account shows almost nothing spent on trainer salaries, something is off.
- Who are the trustees, what do they do for a living, and how often does the board actually meet? You can see ours on the Setu board of trustees page.
How to read a non-profit Balance Sheet
A Balance Sheet is a photograph taken at one instant — almost always 31 March, the close of the Indian financial year. It says what the organisation owned and owed on that single day. It does not tell you what happened during the year; that is the Income & Expenditure Account's job.
Non-profits do not have shareholders, so instead of "share capital" you will see funds. Here is what the common lines actually mean.
| Line item | What it means in plain English |
|---|---|
| Corpus Fund | Money donated with a written instruction that it be kept permanently as capital. The organisation is generally expected to hold and invest it, using the returns rather than spending the principal. Think of it as an endowment. |
| General Fund | Accumulated surpluses from past years that are not restricted. This is the organisation's own working reserve — the buffer that lets it pay salaries in a month when a grant arrives late. |
| Earmarked / Designated Funds | Grant money received for a named purpose and not yet spent. It sits on the liabilities side because, in substance, the organisation still owes that work to the funder. |
| Fixed Assets | Land, buildings, vehicles, computers, training equipment — things that will be used for more than a year, shown after deducting accumulated depreciation. |
| Investments | Where reserves and corpus are parked. For an entity claiming income-tax exemption, these are expected to be held in the modes permitted under section 11(5) of the Income-tax Act, 1961 — largely bank deposits and government-backed instruments, not speculative holdings. |
| Current Assets | Cash, bank balances, grants receivable, advances. Read this alongside current liabilities to judge whether the organisation can meet the next few months' obligations. |
| Current Liabilities | What is owed shortly — unpaid vendors, statutory dues such as TDS and provident fund, staff dues. |
Corpus versus general fund
A corpus donation is capital: it is given with a specific written direction that it form part of the corpus, and under section 11(1)(d) of the Income-tax Act it is treated differently from ordinary income. A large corpus is a sign of long-term stability, not of hoarding.
The general fund is the opposite — it is discretionary. When people worry that a charity is "sitting on money", they usually mean the general fund. Some reserve is not a failing; it is the difference between an organisation that can weather a delayed disbursement and one that stops paying its teachers.
Restricted versus unrestricted grants
A restricted grant can only be spent on what the funder specified. Most CSR and institutional grants are restricted, often down to the budget line. Unrestricted income — typically individual giving — is the money an organisation can use to fix a roof, replace a laptop, or keep a programme alive between funding cycles.
Small unrestricted individual gifts are frequently the most valuable rupees a non-profit receives, precisely because nobody else will fund the unglamorous things. For how restricted corporate funding gets structured in practice, we have written separately about how Noida companies should choose a CSR partner.
Capital versus revenue expenditure
Revenue expenditure is consumed within the year — salaries, rent, teaching materials, travel. Capital expenditure buys something that lasts — a vehicle, a building, sewing machines for a vocational centre. Capital spending appears on the Balance Sheet as an asset and is written down over time through depreciation, so it will not show up as a lump in one year's expenditure. Donors sometimes misread a big asset purchase as missing money. It isn't; it has changed form.
Reading the Income & Expenditure Account
If the Balance Sheet is a photograph, the Income & Expenditure Account is the film of the whole year. Non-profits prepare it on an accrual basis — income recorded when earned, expenditure when incurred, regardless of when cash moved. The Institute of Chartered Accountants of India has issued a technical guide on accounting for not-for-profit organisations setting out the expected treatment.
Many Indian NGOs also prepare a Receipts & Payments Account, which is the pure cash view. Reading both together is the fastest way to spot a mismatch between what was promised and what was actually banked. What to look for:
- The composition of income. Individual donations, corporate and CSR grants, institutional grants, foreign contributions, interest income — each should be separately visible.
- The shape of expenditure. Programme costs should be broken out by activity, not lumped into one line called "project expenses".
- The surplus or deficit, and the trend over three years. One year of deficit means little. Three consecutive years of deficit with no corresponding drawdown plan is a warning.
- Notes to accounts and related-party disclosures. The notes are where the interesting information hides. Read them.
The paperwork a legitimate Indian NGO should be able to show you
Any established charity should be able to produce this file within a day of your asking. If a request for it produces friction, that is itself your answer.
- Registration document. A trust deed (for a public charitable trust), a memorandum and rules with a Registrar of Societies certificate (for a society under the Societies Registration Act, 1860), or a certificate of incorporation and licence (for a Section 8 company under the Companies Act, 2013).
- PAN. The organisation's own permanent account number.
- 12A / 12AB registration. This is what exempts the organisation's own income from tax. Following amendments introduced by the Finance Act, 2020 and given effect from 2021, earlier 12A and 12AA registrations were migrated to section 12AB, and registrations are now granted for a limited period and must be renewed rather than lasting indefinitely. Check the validity dates on the certificate.
- 80G approval. This is what lets you, the donor, claim a deduction. It is likewise now time-limited and renewable. Two practical points: donations made in cash above ₹2,000 do not qualify for the deduction, and since the 2021 regime the organisation must file a statement of donations in Form 10BD and issue you a certificate in Form 10BE. If a charity cannot issue Form 10BE, you should not be relying on its 80G claim.
- CSR-1. Any entity receiving CSR funds under section 135 of the Companies Act, 2013 must be registered with the Ministry of Corporate Affairs by filing Form CSR-1, which generates a CSR registration number. Companies are expected to verify this before disbursing.
- FCRA registration or prior permission. Required under the Foreign Contribution (Regulation) Act, 2010 before accepting any foreign contribution, and administered by the Ministry of Home Affairs. Registration runs for a fixed term and must be renewed.
- NGO Darpan ID. The NITI Aayog unique ID, generally required to access government grants.
A note on FCRA, because it trips people up
The 2020 amendments to the FCRA changed the regime substantially, and the changes are worth knowing because they are a useful integrity test. All foreign contribution must now be received into a designated "FCRA Account" at the State Bank of India's New Delhi Main Branch. Onward sub-granting of foreign contribution to another organisation is prohibited. Administrative expenses met out of foreign contribution are capped — the 2020 amendment reduced that ceiling to 20 per cent of the foreign contribution utilised in a financial year.
Registered organisations must also file an annual return in Form FC-4 with the Ministry of Home Affairs for each financial year, and the rules require details of receipts and utilisation to be placed in the public domain. Setu maintains a page describing its designated FCRA account and filings for anyone who wants to check.
What an audit report is, and who signs it
An audit is not a certificate of good behaviour. It is a Chartered Accountant's independent opinion on whether the financial statements present a true and fair view, formed by testing evidence against the standards on auditing issued by the ICAI. The auditor is appointed by the governing body but must be independent of management, and signs in the CA's own name with a membership number and a unique document identification number.
Separately, an organisation claiming exemption under section 12A must have its accounts audited and file an audit report in the prescribed form with its income tax return. That form is a compliance filing to the tax department; the statutory audit report attached to the accounts is what you want to read.
What a qualified opinion means
Look at the opinion paragraph. There are four possibilities and they are not equal:
- Unmodified (or "clean") opinion — the auditor is satisfied the statements give a true and fair view. This is the normal outcome.
- Qualified opinion — the statements are fine except for a specific identified issue. The auditor will say what it is. Read that paragraph carefully: a qualification about an unconfirmed balance is very different from one about unverifiable cash expenditure.
- Adverse opinion — the auditor believes the statements do not give a true and fair view. This is serious.
- Disclaimer of opinion — the auditor could not obtain enough evidence to form any opinion at all. Arguably the worst signal of the four.
Also read the "Emphasis of Matter" paragraph if there is one. It does not modify the opinion, but the auditor is deliberately pointing at something. Setu's own auditor's report and the accompanying trustees' annual report are published in full, opinion paragraph included.
The real problem with overhead ratios: the starvation cycle
In 2009, Ann Goggins Gregory and Don Howard published an essay in the Stanford Social Innovation Review called "The Nonprofit Starvation Cycle". Its argument has held up uncomfortably well. Funders demand low overheads. Non-profits, competing for those funds, under-report their real costs. Funders take the under-reported figures as the benchmark and demand lower overheads still. The cycle repeats until organisations are structurally unable to invest in the things that make them effective.
The casualties are always the same: accounting systems, data collection, staff training, salaries that retain good people, and honest measurement of whether the work is achieving anything. In 2013 the heads of three major American charity-rating bodies wrote an open letter arguing that the overhead ratio was a poor measure of charity performance — a striking admission from the very organisations that had popularised it.
An organisation that cannot afford to find out whether its programme works is not efficient. It is flying blind, cheaply.
None of this excuses waste. It is an argument for judging cost against results. Keeping a girl in secondary school for another three years costs something; the honest question is whether the money bought the outcome, which is why our write-up on keeping girls in school through Project Uday talks about retention rather than headcount.
A donor checklist before you give
- Confirm the legal name, registration type and registration number — and check they match the name on the receipt you will be issued.
- Ask for the last two years of audited financial statements. Read the auditor's opinion paragraph before anything else.
- Check the 12A/12AB and 80G certificates are current, not expired.
- If you are a company giving CSR funds, verify the CSR-1 registration number. If the organisation takes foreign money, check the FCRA registration is valid and that FC-4 returns have been filed.
- Look at the income mix across three years. Ask what happens if the largest funder leaves.
- Ask what the organisation measures, how often, and who verifies it.
- Ask whether your gift will be restricted or unrestricted, and decide deliberately which you want it to be.
- Insist on a receipt and, where 80G is claimed, on a Form 10BE certificate in due course.
- Visit if you can. Twenty minutes at a centre tells you things no statement will. Our programme pages list where we work.
How Setu opens its own books
We publish rather than promise. Our audited accounts, with the Balance Sheet, Income & Expenditure Account and the auditor's signed report, are on the financials page. The trustees' annual report sets out governance, board composition and the year's activities. FCRA receipts and filings are listed separately, and our corporate partners are named on the sponsors page rather than kept anonymous.
For our most recent completed year: [Setu to insert: programme spend as % of total expenditure, FY 2024-25], with income split as [Setu to insert: income mix — individual giving / CSR / institutional grants / foreign contribution, FY 2024-25]. The auditor's opinion for that year was [Setu to insert: audit opinion type and auditor firm name, FY 2024-25].
The Setu Foundation has worked in and around Noida since 2007 under a simple mission — to skill and empower the un-served. That work only means something if the accounting behind it holds up to inspection. If something in our statements does not make sense to you, write and ask; we would rather answer a hard question than lose a thoughtful donor to a doubt we could have cleared up.
If you want to act on this, the donate page sets out how to give — including how to tell us whether your contribution should be restricted to a particular programme or left unrestricted, which, as you now know, is a more consequential choice than it first appears.
