INCOME TAX - REGISTRATION PROCEDURE FOR NGOs

INCOME TAX - REGISTRATION PROCEDURE FOR NGOs

INTRODUCTION
01 Income tax was first introduced in India in 1860. In those days income related with charitable purposes were totally exempt from tax. Over the years the Income Tax Act underwent radical changes, basically to ensure that such exemptions are not misused by unscrupulous elements. Currently extensive exemptions are still available to NGOs but a host of regulatory provisions have been incorporated in the act, which are to be adhered to, in order to claim exemptions.

APPLICATION FOR REGISTRATION
02 In order to claim exemption, an NGO should make an application to the Commissioner of Income Tax for registration of the NGO. Such application is to be made in Form 10A. The following documents are required to be submitted :i) Form 10Aii) The original instrument under which the NGO is established, or the Bye Laws & Memorandum of Association evidencing the creation of the NGO should be enclosed.iii) Two copies of the Accounts of 3 previous years should be enclosed. Where the NGO was not in existence in any of three prior years, copies of the accounts of lesser No. of years may be submitted.

TIME LIMIT FOR MAKING AN APPLICATION
03 The application for registration should be made before expiry of one year from the date of creation of the NGO. NGOs which make a delayed application are allowed exemption with effect from the 1st day of the financial year in which application is made. However the Commissioner of Income Tax has the power to condone the delay in submitting the application.

THE AUTHORITY TO WHOM APPLICATION IS TO BE MADE
04 The application is to be submitted Income Tax - Registration Procedure to the Commissioner of Income Tax in whose area the NGO is located. However, in respect of the four metropolitan cities of Calcutta, Chennai, Delhi & Mumbai, the applications are to be made to the Director of Income Tax (Exemption).

GRANTING & REFUSAL
05 The Commissioner of Income Tax, on receipt of an application for registration of an NGO, shall call for such documents or information, as he thinks necessary. While processing such application, the concerned authority normally concentrates on the genuineness of the NGO. Once the genuineness of the activities & creation is established, then it is incumbent upon the authority to pass an order in writing, registering the NGO.

OPPORTUNITY OF BEING HEARD
06 The Commissioner of Income Tax has the power to reject an application for registration. It may be noted that such powers cannot be used arbitrarily without subtantiating adequate reasons for such rejection. Under the current laws it is statutorily required that, an opportunity of being heard should be provided to the applicant, before rejection of any application.

CAN WE APPEAL AGAINST REJECTION
07 Under the provisions of Section 253 of the Income Tax Act an appeal can be made to the Income Tax Appellate Tribunal against an order rejecting the application for registration. Under such circumstances if an NGO sincerely believes that an unjust order has been awarded against it, then it can file an appeal.

TIME LIMIT FOR PASSING THE ORDER
08 Under income tax laws the order for either granting or refusing registration shall have to be passed within six months from the end of the month in which the application was made.

WHAT IF NO ORDER IS PASSED WITHIN THE TIME LIMIT
09 Here it is worthwhile to note that, both FCRA and Income Tax laws in India are vague and ambiguous in this regard. Ironically it has been clearly mentioned in the Income Tax Act that an order has to be passed within 6 months but nothing has been mentioned about the fate of the application if it is not cleared within 6 months. Some sort of amendment is required in this regard. A deeming provision for automatic registration may not be a bad idea. Under FCRA Laws if an NGO applies for prior permission to receive Foreign Funds and if the application is not processed within 90 days, the application is deemed to have been automatically granted. But as far as registration is concerned both Income Tax Act & FCRA are silent.

CAN REGISTRATION ONCE GRANTED BE CANCELLED
10 The Finance Act, 2004 has inserted a new sub-section to section 12AA. By virtue of this newly inserted sub-section 3, the Commissioner with effect from 1st day of October, 2004 shall have the power to cancel the registration, if he or she is satisfied that the acitivities of such trust/institution are not genuine or are not being carried out in accordance with the objects of the Trust or Institution. Before such cancellation, the Commisioner has to provide a reasonable opportunity of being heard and an order in writing has to be passed for such cancellation.

CONDONATION OF DELAY
11 The application for registration should be made within one year from the date of creation of Trust. If application is filed after the period as said, then the Chief Commissioner or Commissioner can condone the delay after satisfying himself that sufficient reasons exist for delay. If condonation of delay has not been granted by the Commissioner, then the Trust or Institution would be eligible for exemption from the first day of the financial year in which the application is filed.

12 The power empowering the authority concerned to condone the delay, in case of Trust or Institution who makes an application before the expiry of one year from the date of creation of the Trust or the establishment of the Institution, whichever is later, still remains as it was before, as such authority concerned have power under the circumstances to condone the delay, after satisfying the reasons for delay and for reasons recorded in writing.

REGISTRATION OF NGOs OF NATIONAL IMPORTANCE
13 Government of India notifies few NGO's in the official gazette each year. Such notified NGO's are totally exempted from tax even if they are not registered under section 11 of the Income Tax Act. All NGO's are open to apply for this recognition. Currently, the Central Government has exempted various organisations including universities, sport institutions, medical institutions, NGO's etc, under these provisions. An NGO can apply for such exemptions under section 10(23)(c)(iv).

14 In order to claim exemption, an application in Form No. 56 is to be submitted to the Director General (Income Tax Exemption), Calcutta through the Commissioner of Income-Tax having jurisdiction over the Trust or Institution in four copies alongwith the following documents :
a) copies of the Deed of Trust/Rules and Regulations/Memorandum and Articles of Association ;b) a List of Members of the Governing Council/Body ;c) photocopies of the latest certificate under Section 80G issued by the Commissioner of Income Tax, if applicable ;
d) photo-copies of the assessment orders passed for the last three year (or to the extent applicable)e) photocopy of communication from the Commissioner of Income Tax with reference to the application of the Fund/Trust/Institution for registration.

Source : http://www.incometaxforngos.org/

Sushil Kumar's Solution Planet

Tax Calendar for NGOs for 2008-09

Tax Calendar for NGOs for 2008-09

Sushil Kumar's Solution Planet

PERMANENT ACCOUNT NUMBER (PAN) FOR NGOs

PERMANENT ACCOUNT NUMBER (PAN) FOR NGOs

INTRODUCTION
01 All organisations which are required to furnish return of income under section 139(4A) and (4C) should apply for a Permanent Account Number(PAN). As the name suggests, it is a taxpayer’s permanent identification number allotted by the income-tax department. PAN once allotted remains valid forever unless it is cancelled or changed by the department. Explanation to section 139A(8) defines PAN as “Permanent Account Number under the new series means a permanent account number having 10 alphanumeric characters and issued in the form of a laminated card”.

APPLICATION PROCEDURES
02 The application for allotment of PAN is required to be made in a revised format of Form No. 49A, the acknowledgement of the application is returned to the applicant after affixing the official stamp by the department. The application for PAN should be accompanied by the proof of identity and address of the applicant. The PAN application is to be made to the assessing officer who has been specifically assigned by the income-tax department to carry out such function.

NECESSITY AND USES OF PAN
03 Under the existing law, it is absolutely necessary for all income- tax assessees to quote PAN in the following documents :
(i) in the income-tax return and in all other correspondences with the income-tax department.
(ii) in all challans for payment of any tax, interest and penalty due under the Income-tax Act.
(iii) in all documents related with the following transactions :
(a) sale or purchase of any immovable property in excess of Rs. 5,00,000/-.
(b) sale or purchase of a motor vehicle other than a two wheeler.
(c) a time deposit exceeding Rs. 50,000/- with a bank.
(d) a deposit exceeding Rs. 50,000/- in any account with a Post Office.
(e) sale or purchase of shares, stocks and other securities in excess of Rs. 10,00,000/-.
(f) opening of a bank account.
(g) applying for a telephone connection including cellular phone connection.
(h) payment to hotels and restrauants in excess of Rs. 25,000 at a time.
Further, if any part of the income of the assessee is liable to deduction of tax at source, the assessee is required to intimate his PAN to the person responsible for deducting tax at source.

PENALTIES
04 The Voluntary Organisations which fail to comply with the provisions of section 139A are subjected to penalty under section 272B, inserted by the Finance Act, 2002. A sum of Rs.10000 by way of penalty can be levied on such organisations after giving a reasonable opportunity of being heard. It may be noted that penalty is leviable not only for not applying for PAN, but also for (i) failure to quote PAN in the prescribed documents, or (ii) failure to intimate such PAN when required, or (iii) quoting or intimating a number which is false. Penalty is however not leviable if the assessee proves that there was reasonable cause for the failure.

AUDIT & FILING OF RETURN FOR NGOs

AUDIT & FILING OF RETURN FOR NGOs

REQUIREMENT OF AUDIT REPORT
01 Section 12A states two conditions for availing the exemption available under the Act, the first condition is regarding application for registration and the second condition is regarding audit by an accountant as defined in the Explanation below sub-section (2) of section 288. All organisations are required to apply for registration within one year from the date of their creation. If there is delay in applying for registration then the organisation should submit Audit Reports for the past three years or as may be available.

MONETARY LIMIT
02 The monetary limit for compulsory audit under section 12(b) was raised from Rs. 25,000 to Rs. 50,000 by the Finance Act, 1994.

03 The implication of section 13(3) is extensive and therefore it may not be possible on the part of the Auditor to make independent inquiries. Therefore the Auditor before certifying the annexure to Form 10B should ensure and also clearly state the scope of his work and the responsibilities owned. It is important that the Auditor should mention in its report that the details of the persons covered under section 13(3) were provided by the Trustees of the Trust or the functionaries of the organisations.

FILING OF RETURN
04 All Charitable Organisations having income exceeding Rs. 50,000 during the previous year are required to file their return of income. The ‘income’ for the purposes of filing the return should be computed without giving effect to the provisions of sections 11 and 12 of the Act. Such returns are to be filed with the Income-Tax Officer or the Assessing Officer under whose local jurisdiction they fall. The return is to be filed as per the provisions of section 139(4A) and (4C) in the manner provided in section 139 of the Act.

FILING OF RETURN MADE mandaatory
05 The Finance Act, 2002 has inserted sub-section (4C) to section 139 making it mandatory for the organisations registered under section 10(21), 10(22B), 10(23A), 10(23B), 10(23C) etc। to file Annual Returns under section 139(1). Earlier no clear provision for filing of return by these organisations was available, and it was not very clear whether these organisations were required to file returns or not, though Bombay High Court held in a case that returns are required to be filed. Now this controversy seems to be resolved.

FORMS AND DUE DATES
06 All Organisations or Trusts are required to file the return in Form No. 3A by the 31st October of the assessment year. The return must be accompanied by an Audit Report in Form 10B prescribed under Rule 17B of the Income-Tax Rule, 1962.

FILING OF RETURN BY UNREGISTERED ORGANISATIONS
07 Organisations which are not registered under the provisions of the Act, do not enjoy any exemption on their income hence, they are liable to file a return if the voluntary contribution received by them or their income exceeds Rs. 50,000. Such organisa-tions should file their income-tax return in Form No. 2, if the income includes “business income” or in Form No. 3, if the income does not include “business income”.

DELAYED SUBMISSION OF RETURN OF INCOME
08 An organisation which fails to furnish its return of income within the due date can still submit its return of income any time before the expiry of one year from the end of the relevant assessment year or before the completion of the assessment whichever is earlier. For instance, a return of income for the financial year 2001-2002 can be submitted upto 31st March, 2004.
09 Under section 272A(2)(e), any Voluntary Organisation which fails to furnish the return of income which it is required to furnish under sub-sections (4A) and (4C) of section 139 or fails to furnish it within the time allowed and in the manner required under that sub-section, it shall pay by way of penalty a sum of Rs. 100 for everyday during which the failure continues. Before imposing such penalty, an opportunity of being heard shall be given to the organisation.
DOCUMENTS TO BE ATTACHED WITH THE RETURN
10 One set of the following documents are required to be attached with the return :
(i) Audit Report in Form 10B.
(ii) Balance Sheet.
(iii) Income and Expenditure Account.
(iv) Receipt and Payment Account.
(v) Copy of the Registration Certificate.
(vi) In case the organisation has accumulated income, resolution for accumulation.
(vii) Form 10 in which application for accumulation is made.
REVISION OR CORRECTION OF MISTAKES
11 The concerned organisation can file a revised return at any time before the expiry of one year from the end of the assessment year or completion of the assessment whichever is earlier only if there is any mistake or omission in the return. For instance, if the financial year for which the return is filed is 2001-2002 then a revised return can be submitted any time on or before 31st March, 2004, provided the assessing officer has not completed the assessment in the intervening period.

OVERALL SUMMARY
12 To sum up the discussions
(i) Registration under Income Tax Act, is a mandatory requirement to claim exemptions.
(ii) Registration is only a pre-condition for exemption. But, in order to claim exemptions, compliance of other provisions and conditions is necessary.
(iii) Application in Form 10A, in duplicate is required to be made to Commissioner of Income Tax.
(iv) The time limit for making such application is one year from the date of creation of the organisation.
(v) If the application is filed after the time limit, the C.I.T can condone the delay after satisfying himself that there were sufficient reasons which existed for delay.
(vi) If the delay is not condoned then the organisation will be eligible for exemptions from the first day of the financial year in which the application is filed.
(vii) It has been held in various case laws that an organisation once found eligible for registration should normally qualify for registration from the date of its creation. This issue remains debatable.
(viii) The C.I.T, on receipt of application, shall call for such documents and information as he thinks necessary to determine the genuineness of the organisation.
(ix) The C.I.T has to make an order in writing within six months from the end of the month in which the application is made.
(x) If the C.I.T wants to reject the application for registration, then a reasonable opportunity of being heard should be provided to the applicant.
(xi) Though the time limit of six months for processing an application is prescribed,there is no provision with regard to the delay made in processing the application.
(xii) There is no provision in the Act for withdrawal of registration once granted. Therefore, registration once granted is permanent in nature.
(xiii) If the application for registration is rejected then the aggrieved organisation can file an appeal against such order to the Appellate Tribunal under section 253.
(xiv) The time limit for filing an appeal to the Tribunal is 60 days from the date on which the order is received.
(xv) Under section 12A, all Charitable Organisations have to get their accounts audited if the total income exceeds Rs. 50,000/-. Such Audit Report has to be in Form 10B.
(xvi) Further, all Charitable Organisations having total income exceeding Rs. 50,000/- during the previous year are required to file their return of income. The return of income is required to be filed in Form 3A, as per the provisionsof section 139(4A) & (4C).
(xvii) Even unregistered organisations which do not enjoy any exemptions are required to file return if their income exceeds Rs. 50,000/-. Such return should be filed in Form 2 or in Form 3, if the income does not include business income.
(xviii) An organisation can submit a delayed return under section 139(4), any time before the expiry of one year from the end of the relevant assessment year.
(xix) An organisation can file a revised return at any time before the expiry of one year from the end of the relevant assessment year or completion of the assessment whichever is earlier only if there is mistake or omission in the return.
(xx) One set of the following documents are required to be attached with the return :
(a) Audit Report in Form 10B.
(b) Balance Sheet.
(c) Income and Expenditure Account.
(d) Receipt and Payment Account.
(e) Copy of the Registration Certificate.
(f) In case, the organisation has accumulated income, resolution for accumulation.
(g) Form 10 in which application for accumulation is made।


Source : http://www.incometaxforngos.org/

INCOME TAX - PRIVILEGES TO THE DONORS U/S 80G

INCOME TAX - PRIVILEGES TO THE DONORS U/S 80G

INTRODUCTION
01 As we already know that an NGO can avail income tax exemption by getting itself registered and complying with certain other formalities, but such registration does not provide any benefit to the persons making donations. The Income Tax Act has certain provisions which offer tax benefits to the "donors". All NGO's should avail the advantage of these provisions to attract potential donors. Section 80G is one of such sections.

REGISTRATION UNDER SECTION 80G

02 If an NGO gets itself registered under section 80G then the person or the organisation making a donation to the NGO will get a deduction of 50% from his/its taxable income. The NGO has to apply in Form No. 10G As per Annexure - 29 to the Commissioner of Income Tax for such registration. Normally this approval is granted for 2-3 years.

DOCUMENTS TO BE FILLED WITH FORM 10G

03 The application form should be sent in triplicate to the Commissioner of Income Tax alongwith the following documents :i) copy of income tax registration certificate.ii) detail of activities since its inception or last three years whichever is lessiii) copies of audited accounts of the institution/NGO since its inception or last 3 years whichever is less.

CONDITIONS TO BE FULFILLED UNDER SECTION 80G

04 For approval under section 80G the following conditions are to be fulfilled :
i) the NGO should not have any income which are not exempted, such as business income. If, the NGO has business income then it should maintain separate books of accounts and should not divert donations received for the purpose of such business.ii) the bylaws or objectives of the NGOs should not contain any provision for spending the income or assets of the NGO for purposes other than charitable.iii) the NGO is not working for the benefit of particular religious community or caste.iv) the NGO maintains regular accounts of its receipts & expenditures.v) the NGO is properly registered under the Societies Registration Act 1860 or under any law corresponding to that act or is registered under section 25 of the Companies Act 1956.

EXTENT OF BENEFIT

05 There is ceiling limit upto which the benefit is allowable to the donor. If the amount of deduction to a charitable organisation or trust is more than 10% of the Gross Total Income computed under the Act (as reduced by income on which income-tax is not payable under any provision of this Act and by any amount in respect of which the assessee is entitled to a deduction under any other provision of this Chapter), then the amount in excess of 10% of Gross Total Income shall not qualify for deduction under section 80G.In other words, while computing the total income of an assessee and for arriving at the deductible amount under section 80G, first the aggregate of the sums donated has to be found out. Then 50 per cent of such donations has to be found out and it should be limited to 10 per cent of the gross total income. If such amount is more than 10 per cent of the gross total income, the excess will have to be ignored.

IILUSTRATION OF BENEFITS UNDER SECTION 80G

06 The persons or organisation who donate under section 80G gets a deduction of 50% from their taxable income. Here at times a confusion creeps in, that the tax advantage under section 80G is 50%, but actually it is not so. 50% of the donation made is allowed to be deducted from the taxable income and consequently tax is calculated.

07 The ultimate benefit will depend on the tax rates applicable to the assessee. Let us take an illustration. Mr. X an individual and M/s. Y Pvt. Ltd., a Company both give donation of Rs. 1,00,000/- to a NGO called Satyakaam. The total income for the year 2003-2004 of both Mr. X and Ms. Y Pvt. Ltd. is Rs. 2,00,000/-. Now assuming that the rates are 30% for the individuals and 40% for the Companies without any minimum exemption limit. The tax benefit would be as shown in the table :

Source : http://www.incometaxforngos.org/

INCOME TAX - PRIVILEGES TO THE DONORS U/S 35AC

INCOME TAX - PRIVILEGES TO THE DONORS U/S 35AC

INTRODUCTION
01 As we already know that an NGO can avail income tax exemption by getting itself registered and complying with certain other formalities, but such registration doesn't provide any benefit to the persons making donations. The Income Tax Act has certain provisions which offer tax benefits to the "donors". All NGOs should avail the advantage of these provisions to attract potential donors. Section 35AC is one of such sections.

REGISTRATION UNDER SECTION 35Ac
02 The Central Government approves certain NGOs and notifies them as eligible for project or schemes for the purposes of section 35AC. If an NGO succeeds in getting such an approval for its projects then it stands a very good chance of mobilising funds from the corporate and the business sector. Business houses making contribution to such approved projects are allowed the benefits of deducting such contribution as expenditure.

NATIONAL COMMITTEE
03 The Central Government has constituted a National Committee to identify projects and schemes to be notified under section 35AC, such committee normally consists of eminent persons. All NGOs are entitled to apply to the National Committee to get its projects or schemes approved.
WHERE THE APPLICATION IS TO BE MADE
04 The application for approval by the National Committee should be made to the Secretary, National Committee for Promotion of Social & Economic Welfare, Dept. of Revenue, Govt. of India, North Block, New Delhi - 110001.
THE APPLICATION AND ITS ENCLOSURE
i) The application is to be made in 2 Sets, written either in Hindi or English.
ii) Details such as name, address and status of applicant, the district/ ward circle where assessed/PAN number.
iii) Audited Balance Sheet, Profit& Loss Account or Income& Expenditure Account for the latest year and two preceding years.
iv) How is it constituted i.e. whether as a trust, society, etc supported by relevant documents like trust deed, rules & regulation, memorandum of association etc. and registration certificate, if any.
v) Name & Addresses of the persons managing the affairs of the association or institution, including those who left the organisation but were managing the affairs of the association or institution during the 3 years preceding the date of application.
vi) If the association or institution is notified under section 10(23)(C) or is approved for the purposes of section 80G, the particulars of such approval granted.
vii) Brief particulars of the activities of the association or institution during 3 years preceding the date of application or since inception if the association or institution is less than 3 years old.
viii) Such other information as the association or institution may like to place before the National Committee.

ADDITIONAL INFORMATION REGARDING THE PROJECT/SCHEME TO BE SUBMITTED
(i) Title of project or scheme;
(ii) Date of commencement;
(iii) Duration and the likely date of completion;
(iv) Estimated cost of the project ;
(v) Category or class of persons who are likely to be benefited from the project or scheme;
(vi) Affirmation that no benefit from the project or scheme other than remuneration or honorarium, will accrue to persons managing the affairs of the NGO ;
(viii) Such other particulars as the applicant may place before the National Committee.

CERTIFICATE TO BE ISSUED TO THE DONOR
05 All approved NGOs are required to issue a certificate to the donor for all contributions & receipts under section 35AC. The certificate is to be issued in Form 58A.
06 This certificate will enable the donor to claim exemption from its taxable income. Further, the NGOs should also send an Annual Report to the National Committee indicating the progress of the work relating to the project/scheme and the following informations in respect of each contributor :
i) name of the contributors & their addresses.
ii) PAN.
iii) amount of contributions.
iv) the project/scheme for which the contribution is made.
v) total amount of contribution received during the year.
vi) total cost of the project approved by the National Committee.
07 Such Annual Report should reach the National Committee by 30th June, following the financial year in which the amount is received.

DEDUCTION OF CONTRIBUTION UNDER SECTION 80GGA
08 Section 35AC is available to assessees who have income from the head ‘business’ or ‘profession’. Therefore, for the assessees who do do not have income from business or profession, section 80GGA provides for deduction on donations made to eligible projects under section 35AC. Section 80GGA, is a broader section and deductions are also available for contributions made for scientific research under section 35CCA & 35CCB, which have been withdrawn. 100 per cent deduction is available under section 80GGA, subject to the available gross total income under section 80A. Therefore, unlike section 35AC, deduction under section 80GGA cannot be carried forward in the form of losses to next year .

OVERALL SUMMARY
09 To sum up the discussions :
i) Under section 35AC, organisations having income from business or profession can get 100 per cent deduction. Charitable Organisations can get registered themselves u/s. 5AC by applying to the National Committee under rule 11F to 11-O, if they are carrying on any business.
ii) The Central Goverment has specified various types of projects of national needs for which Charitable Organisations can make donations.
iii) Business houses making donations for the purpose of section 35AC, should be careful that the donee organisation continues to enjoy approval u/s. 35AC. As the approval under section 35(AC) is not permanent in nature.
iv) To get approval u/s. 35AC two sets of application have to be made alongwith specified enclosures to secretary of National Committee, New Delhi.
v) The National Committee may recommend or reject the project but when the approval is recommended then it is for a period of maximum 3 years and it could be further extended if the National Committee is satisfied with the performance during the period.
vi) A certificate has to be issued to the donor in Form 58A. This certificate will enable the donor to claim exemptions.
vii) The National Committee may withdraw the approval if the project is not carried out in accordance with the approved conditions. To withdraw a project National Committee should provide an opportunity of being heard to the aggrieved organisation.
viii) Section 35AC provides deduction from income from business and profession. Similar deduction is also available u/s. 80GGA, for assessees having income from other heads.

Frequently asked questions by NGOS about INCOME TAX ACT, 1961

Frequently asked questions by NGOS

Queries related to Income Tax Act, 1961

Q1 : Whether the Income-tax Act, 1961 is applicable to all the Voluntary Organisations who are engaged in socio-economic development programmes in India ? Please clarify.
Ans : The Income Tax Act, 1961, is applicable to Voluntary Organisations which are engaged in public charitable or religious activity. Hence, Voluntary Organisations which carry out socio-development programmes in India of a charitable nature for the benefit of the public shall get the benefit of the Act and the exemptions available therein.

Q2 : Whether the Income Tax Act, 1961 is applicable to NGO's located in North East India or in District of Laddakh ? Please clarify.
Ans : Yes

Q3 : Whether it is necessary for an NGO to file a Return of Income with the Income tax Department? If so, under what circumstances are the NGOs totally exempt from filing the Return of Income with the tax authorities ?
Ans : A Non-Government Organisation which is registered with the Income Tax Department under Section 12A of the Act is required to file a return of Income, if its total income, without claiming any deductions there from exceeds the maximum amount which is not chargeable to income tax (for assessment year 2003-04 the said amount is Rs. 50,000).

Q4 : What is the procedure for registration of an NGO with the Income Tax Department ?
Ans : The procedure for registering a Non-Government Organisation, which is a public charitable trust, is to file an application in Form 10A (As per Annexure 27) in duplicate. This application should be sent to the Commissioner having jurisdiction in the area where the trust is situated, and should be filed before the expiry of one year from the date of creation of the trust or the establishment of the institution. The enclosures referred to in the said form should also be attached to the application.

Q5 : Whether it is necessary for an NGO to be registered as a Charitable Society or a Public Trust for seeking registration under Section 12A of the Income tax Act, 1961?
Ans : An analysis of Section 12(a) and Rule shows that the fact to be established is the creation of the Trust and this fact is required to be established by producing constitution and evidential documents. Where the trust is not created under the instrument, the rule requires the production of evidential documents i.e. the instrument which has created the trust. The evidential document could not be limited to the document which directly proves the creation of the trust, they will include all documents which afford a logical basis of inferring creation of the trust and all such documents can be described to be "documents evidencing the creation of the trust" within rule 17A(a). Therefore, in Laxmi Narayan Maharaj vs. CIT (1984) 150 ITR 465 (MP) it was held that all the documents, though not directly showing the creation of the trust, [for example : (a) revenue records relating to lands held by the trust ; (b) orders relating to assessment of property tax] afforded a logical basis for inferring the creation of the trust and therefore, could be described as documents showing creation of the trust for the purpose of Rule 17A.
Therefore, it is not necessary for an NGO to be either a society registered under the Societies Registration Act or a Public Charitable Trust for seeking registration under Section 12A(a) of the Income Tax Act, 1961.

Q6 : Whether all kinds of receipts (Capital or Revenue) are treated as a part of income ? Whether any category of receipt is exempted ? Please clarify. Whether donations to corpus Fund is a "Revenue receipt" or a "Capital Receipt" ? Further, whether it is exempted from being shown as income in the Income-tax Return or not ?
Ans : All kinds of receipts, whether capital or revenue nature are treated as income in the hands of a public trust or religious trust, except donations made with a written direction from the donor that the donation made shall be treated as part of the corpus of the trust. Such a donation to corpus shall not be included in the total income of a trust or institution. However, it shall be shown separately in Part IV of the Return of Income Form 3A (As per Annexure 25), which is the part where exempted receipts by trusts or institutions are to be shown.

Q7 : Whether interest earned on investments of Corpus Fund is taxable or is it exempt from Income-tax Act ?
Ans : Interest earned on investment of Corpus Fund will be treated as income of a trust or institution. Such income may be applied to charitable purposes, thereby saving it from income tax.

Q8 : Whether a donor can make a contribution to the Corpus Fund with certain conditions and/or qualification to be fulfilled by the recipient ? If so whether same will be treated as donation to Corpus Fund or not ?
Ans : Donors may make a contribution to Corpus Fund with certain stipulations and conditions, such as the purpose of the fund and its utilisation, and such conditions and stipulations will not in any way change the nature of the Corpus Fund i.e. it will still be exempt from income-tax.

Q9 : Whether a donor who has made a contribution to the Corpus Fund has a right to call-back the amount of contribution to the Corpus Fund made by him ? If so what would be the treatment in the year of refund ?
Ans : A donation is by its very nature a completed gift and once the donation has been accepted by the donee, the donor has no right to ask for the amount to be refunded. Donations to Corpus will also be similarly treated.

Q10 : What is the method of calculation of the application of income for charitable or religious purposes in a particular year ?
Ans : The method of calculation to be employed for arriving at the application of income to charitable or religious purpose is very simple. All expenditure of a capital nature incurred by a trust or institution shall be added to the expenditure appearing in the income and expenditure account and the same shall be thereafter deducted from the gross income of the trust.

Q11 : Whether 100% of the income (receipts) during a particular year is to be utilised in that same year or whether it can be accumulated ? If so under what circumstances and to what extent ?
Ans : Section 11 of the Act requires a trust to utilise atleast 85% of its income for charitable or religious purposes, and the remaining balance is permitted to be accumulated. Also, if a situation arises where it is not possible to spend 85% of the income in the same year, then a trust or institution may make an application to the Assessing Officer in Form 10 (As per Annexure 26) for accumulating its income for future application to charitable or religious purposes. This application should be made on or before the last date for the filing of the return of income which is the 31st October, of the relevant year, for Institutions having the income over Rs. 50,000. In other cases, Form 10 should be filed by the 30th day of June in the relevant assessment year.

Q12 : If the income cannot be utilised during a particular year, upto how many years can it be accumulated ? Furthermore, if the income can not be applied subsequently what will be its treatment for income-tax purposes ?
Ans : After complying with formalities discussed above, the income may be utilised in the next 5 year for the purposes mentioned in Form 10. However, if the income is not so utilised in this period, then it will be treated as income in the eleventh year.

Q13 : Whether depreciation on Fixed Assets can also be charged as application of income? If so, the relevant case laws be given to support the contention.
Ans : Depreciation on Fixed Assets can also be claimed as application of income to charity, if the capital expenditure (on which depreciation is claimed) has not been claimed as income applied to charitable or religious purposes. Although various Income Tax Appellate Tribunals and also the High Court (in CIT v/s Society of Sister of St. Anne 146 ITR 28) had allowed depreciation in addition to capital expenditure to be claimed as income applied to charitable/religious purposes, this may not be possible, now, in view of the decision of the Supreme Court [Escorts Ltd. vs. Union of India in 199 ITR 43], which has ruled that a double deduction in respect of the same outgoing (i.e. depreciation and capital expenditure) cannot be allowed. This was subsequently followed by the Income Tax Appellate Tribunal [IAC vs. Mahila Sidh Nirman Yojna (ITR No. 1880 and 2020 DEL/1989 dated 6.7.1994)].

Q14 : Whether purchase of Fixed Assets can be applied against revenue income in a particular year ? Please clarify. What is the treatment of income received on account of sale of Fixed Assets in the Income-tax Act, 1961?
Ans : The purchase of fixed assets can also be claimed against revenue as income applied to charity. On the sale of Fixed Assets, the capital gain, if any, arising therefore shall be treated in accordance with the requirements of Sections 11(1A) of the Act :
a) Where the whole of the net consideration received on the sale of the asset is utilised for acquiring a new capital asset, then the whole of the capital gain arising therefrom shall be exempted.
b) Where only a part of the net consideration from the sale proceeds is utilised for acquiring a new capital asset, then so much of the capital gain as is equal to the amount, if any, by which the amount so utilised exceeds the cost of the transferred assets will be exempted. It may be noted here that it is not necessary to acquire a new capital asset in order to avail of the exemption from income-tax on capital gains. Instead, the capital gains arising as aforesaid may also be applied to the charitable purposes of the trust (if the Trust Deed so permits), whereupon it shall get the benefits of exemption from income-tax to the extent it is so applied.

Q15 : Whether the amount shown under the "Income and Expenditure Account" is to be taken for the purposes of calculation of application of income, or the figures from the "Receipts and Payments Account" are to be taken for the said purpose ? Please clarify.
Ans : The Income and Expenditure Account reflects the transactions of a revenue nature i.e. revenue receipts and payments, and all capital receipts and payments are generally reflected in the Balance Sheet. On the other hand, the Receipts and Payments Accounts reflects all transactions (other than journal entries for provisions made in the accounts, such as for depreciation, provision for gratuity, etc.) Therefore, it will be more convenient to use the Receipts and Payments Account for the purpose of preparing a return of income since all types of receipts (capital or revenue and all types of payments (capital and revenue) are reflected therein. There should also be no difficulty in preparing a return of income by adopting the figures appearing in the Income and Expenditure Account, and adding thereto the capital receipts and payments appearing directly in the Balance Sheet.

Q16 : If an organisation has surplus funds, how should they be invested so that it may continue to have registration under the Income-tax Act, 1961 ? What are the consequences of non-compliance ? Whether a NGO can make investments in shares and debentures of a Government Company, Public Sector Undertaking, Public Limited or a Private Limited Company or not ?
Ans : The types of investments and deposits permissible to the charitable trusts or institutions are given in Section 11(5) of the Income Tax Act, 1961. No other types of investments or deposits are permitted.

Q17 :What is the time limit within which the income-tax has to be filed with the Income tax Department ? What is the Income-tax Return number to be filed and what documents are to be attached alongwith it ? Whether the audit of the accounts of NGO organisations is compulsory required under the Income-Tax Act, 1961 ? If so the limits and conditions in this regard.
Ans : In the case of a public trust or institution whose gross Income exceeds Rs. 50,000 in any financial year, it will be necessary for the public trust to get its accounts audited by a chartered accountant, and consequently the last date for filing its return of income shall be 31st October, of the relevant assessment year. In all other cases, i.e. where the gross income is Rs. 50,000 or less, the last date for filing the return of income shall be 30th June of the relevant assessment year. The return shall be filed in Form 3A.
The PAN and/or GIR No. of the trust or institution shall be stated on page 1 of the return of income and also on the acknowledgement form (in duplicate). Please attach the following to the return of income. (i) Audited statement of accounts, (ii) Audit report in form 10B(As per annexure 28), wherever applicable, (iii) Income-tax Deduction certificates, if any, for obtaining a refund of Income-tax, (iv) Statement showing computation of income (v) List of Trustees.

Q18 : Whether an NGO can carry on business with or without profit ? What are the consequences as per Income-tax Act, 1961 ?
Ans : A charitable trust or institution can carry over a business which is incidental to the attainment of the objects of the trust or institution, and provided that separate books of account are maintained for such business transactions. For e.g. a charitable trust or institution which has the object of training widows and destitute women in tailoring or handicraft may sell their output, if any, surplus profit arising therefrom will not be taxable since the objects of the trust is to assist destitute and under privileged women to become useful members of the Society, and since it is not a part of the objects of the trust to generate profits, as such. Separate books of accounts of such activities should be maintained in order to claim income tax exemption available to it under Section 11(4A) of the Act.

Q19 : Whether an NGO can give loans to another NGO under the provisions of the Income-tax Act, 1961 ?
Ans : It is possible for a charitable trust or institution to advance monies to any other public trust or institution having similar objects, for the purpose of furthering those objects.

Q20 : Please give us a list of Do' and Don't in check-list form which should be followed by the NGOs so as to comply with the provisions of the Income tax Act as applicable to them ?
Ans : What an NGO should DO
1. Get your account audited.
2. File the return of income by the due date together with the annexures.
3. Deduct income tax at source from salaries paid to employees and from payment to contractors and fees to professionals.
4. Deposit the tax so deducted within time allowed.
5. File annual return of salary Form No. 24 and contractor's payments Form No.26 within the time allowed.
What an NGO should NOT DO
1. File an incomplete return of income or salary or contract payments.2. Wait till the last date for doing the above Dos !

Q21 : What are the obligations of NGOs as an "Employer" under the Income Tax Act, 1961 ? Please furnish a calendar of obligations together with their due dates, which an NGO as an "Employer" has to keep in mind so as to comply with the various provisions of the Income-tax Act, 1961.
Ans : A charitable trust or institution having employees with taxable salaries shall have to deduct income tax at source from the salaries of its employees at the rates applicable to the employee, and the income tax so deducted shall be paid to the Central Government within seven days from the date of deduction. Challan No. 8 shall be used for payment of such deduction of income tax. Challan No. 9 shall be used for other deductions. For this purpose such charitable trusts should apply for a tax deduction account number in Form 49B (As per annexure 36). At the end of the financial year, a certificate in Form 16 shall be issued to the employees from whose salary income tax has been deducted. This certificate shall be issued within one month from the close of the financial year. Furthermore, an annual return of salaries shall have to be filed by the trust in Form 24, and this return should be filed by May 31st each year in respect of the preceding financial year.

Q22 : Whether an office-bearer of an NGO organisation can take salary and other allowances out of the Income of the trust/society ?
Ans : Yes, provided that, if any of the office-bearers are persons covered under Section 13(3) of the Act, the payment made to such persons for services rendered should not be excessive or unreasonable.

Q23 : What are the benefits available to donors who make Voluntary Contributions to the NGOs under the Income-tax Act, 1961.
Ans : Donors who make voluntary contributions to a charitable trust (and not to a religious trust) shall be entitled to claim fifty percent of the amount of the donations as a deduction from their income, provided that the trust or institution holds a valid certificate of exemption under Section 80-G of the Income Tax Act, 1961. If the donor is a charitable trust or institution with similar objects as the donee trust, then it will be able to claim the donation as its income applied to charity.

Q24 : Whether a Voluntary Organisation can undertake any business activity incidental to the object of the Trust ?
Ans : Please refer to the answer of question 26.56 above.

Q25 : Define Corpus Fund.Whether Corpus Fund can be collected in a box written and marked"Corpus Donation" ?
Ans : The term "Corpus Fund" has not been defined in the Income Tax Act, 1961. It is the amount donated by a donor with a specific direction that it shall form part of the Corpus of the Trust or institution. The corpus is considered to be the capital of the trust or institution which should be kept intact. It may be utilised for the purchase of assets such as land, buildings, furniture, fittings, equipment etc. or it may be invested or deposited as per Section 11(5) of the Act, and the income arising therefrom may be utilised for the objects specified by the donor to the Corpus Fund. Corpus Fund cannot be collected in a box, since the Act requires the donor to give a direction (in writing) for treating the donation as corpus.

Q26 : Is there any tax liability for a Voluntary Organisation which is not registered u/s 12A and i) Its receipt are less than minimum taxable limit.ii) Its net income is less than minimum taxable limit.iii) If there is only corpus fund donation.
Ans : i) No

ii) The Income Tax Act, 1961, has defined income to include voluntary contributions received by a trust, or institution created for charitable or religious purposes. Consequently, if the trust or institution is not registered under section 12A of the Act, then it cannot avail of the benefit of Section 11(1) of the Act, which permits a registered trust or institution to claim exemption of its income from income tax to the extent that it has applied 75% of it's income and for accumulating it's income for future application, as aforesaid. Hence, if the gross income is more than minimum taxable limit then it shall have to suffer tax on the amount in excess thereof.

iii) Corpus fund donation have been exempted from the income-tax under Section 11(1)(d) of the Act. Since the benefit of Section 11 will not be available to an unregistered trust as discussed above, such donations will be taxable if they exceed the minimum taxable limit.

Q27 : Whether under the scope of Article 371 A of the "Constitution of India" Charitable Voluntary Organization or trust or any association of person in North East area would be outside the purview of Income tax Act and accordingly such charitable body would be exempt from income-tax provisions ?
Ans : No

Q28 : Whether loans can be given by trust. i) To staff (to what extent)
ii) To students for study.
iii) To undertake R & D programme of general nature or specific nature.
iv) To another trust.
a) Would any of the above loan in violation of investment of funds under Income Tax Act, which could affect its registration ?
b) What would be the treatment in accounts at the time of payment or receiving back of the loan amount ? Whether it should be shown in the balance sheet as an asset in all the above cases ?
Ans : i) Yes, however, loans given to staff will not be considered as income applied to charity.
ii) Yes, provided that the objects of the trust is the advancement of education, and granting of scholarship is one of the activities carried on for the fulfilment of the objectives of the trust. This will be treated as income applied to charity.
iii) Yes, if the Research and Development programmes are germane to the objects of the trust or institution.
iv) Yes, if the borrowing trust has similar objects as the lending trust, the above loans will not in any way violate the investment/deposit pattern described under Section 11(5) of the Act, 1961. Since they are neither investments nor deposits. However, the repayment of scholarship loans and loans to other trust, as aforesaid, will be treated as income when the loans are repaid. (See Departmental circular No. 100 date 24th January, 1973, also followed in [CIT v/s. Cutchi Memon Union (1985) 155 ITR page 51 (Karnataka)], Naturally, since staff loans are not considered as income applied to charity, the refund of such loans will not be assessed as income, under the above circular.

Source : http://www.incometaxforngos.org/