Charitable Trusts and NGO Income Tax
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Charitable Trusts and NGO Income
Filing of Income Tax for Charitable Trusts & NGOs under Section 12A. Learn about the benefits and tax Exemptions for NGOs and Charitable Trusts.
Start with the customer – find out what they want and give it to them.
'Charitable Purpose' in terms of the Income Tax Act.
Clause 15 of Section 2 of the Income Tax defined for the purpose of assistance includes:
(a) Liberation of the poor,
(b) Education,
(c) Medical aid and
(d) Development of any other public utility.
Receipts from Sub-Section (d) must not exceed 20% of the total receipt of the trust.
The category uses the word "inclusive" which is why it is a broad definition
Assistant trustees are governed by Section III of the Income Tax Act which contains Sections 11, 12, 12A, 12AA, and 13.
Section 12A / 12AA contains provisions relating to registration and the registration process under the Income Tax Act. Sections 11 and 12 contain provisions regarding the conditions that must be met by charitable funds in order to claim exemption from Income Tax. Section 13 describes the provisions relating to funds that are not eligible for exemption / s 11 & 12.
Important Taxation Services
Income Tax Return for Salaried Persons
Taxation of Charitable or religious Trusts:-
Section 11 deals with the levying of property Taxes on goods held for Charitable purposes. For the said part, if a charitable or religious trust spends more than or equal to 85% of its total receipts on its object in India, then there is no Tax on balance of 15%. It is worth noting that, the disposal rate and even the fixed assets of the trust are also eligible to contribute at 85%.
Trust option if 85% is not used: -
If the trust has not received all the revenue, then for the purpose of determining more than 85%, the undisclosed amount should be excluded from the full receipt. This excluded amount must be used in the year of acquisition.
If the trust is unable to spend more than 85% in any year for any other reason, the next option is the hope of investing in any of the methods described in Section 11 (5), or else the trust may earn money for a specific purpose within its objectives can be for profit or expense large. However, the trust is required to submit Form 9A electronically before filing a refund. Such accumulation anywhere should not exceed 5 years. Definition 2 of Section 11 further clarifies that the expenditure of income does not include any contribution paid to another registered trust or institution in the form of a contribution to the corporate fund of another trust or institution.
Section 12, Voluntary Contribution Taxes: -
The Fund may receive voluntary donations for its intended purpose. Such a contribution is also treated as a receipt under Section 11 and an application for its purpose of 85% or more applies equally.
The amount of services rendered by the founder or trustees or their relatives will be deemed to be revenue in the hands of the trustee. The Fund must comply with Section 11 of the Income Tax Act.
Conditions of application of Sections 11 and 12:
1. The fund must have / 12AA registration.
2. The activities performed must be in accordance with the objectives of the approved Income Tax fund.
3. If the receipt of the fund exceeds Rs.2,50,000/- for AY 2018-19, it must be audited by the appointed treasurer and receive the audit report on form 10B.
4. From AY 2018-19 onwards, a refund will be lodged within the due date under Section 139 (1). The due date for audits without audit is 31 July of each year. If possible, audits will be held on 30th September every year.
Filing of Return [ Sec 139(4A) ]
When the amount of the fund's income (prior to approving exemptions under Sections 11 and 12) exceeds the maximum Taxable amount (ie. Rs.2,50,000 of AY2015-16 onwards), it is necessary to file its return on Form ITR-7, before the date specified in Section 139. The due date defined under Section 139 is 30 September of each year in which the trust is required to have its accounts audited under any provision of the Act and by 31 July of each year in certain circumstances.
In the event that a refund is not filed by the due date then the benefit of accumulating / s 11 (2) will not be available. [13 (9) seconds installed w.e.f. 1.4.2016]
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Five Main Heads of Income
Income from Salary
- Salary is defined as the remuneration that a person receives periodically for rendering services based on an implied or express contract.
- The Salary for the purpose of calculation of income from Salary includes:
- Wages
- Pension
- Annuity
- Gratuity
- Advance Salary paid
- Fees, Commission, Perquisites, Profits in lieu of or in addition to Salary or Wages
- Annual accretion to the balance of Recognized Provident Fund
- Leave Encashment
- Transferred balance in Recognized Provident Fund
- Contribution by Central Govt. or any other Employer to Employees Pension A/c as referred in Sec. 80CCD.
Income from House Property
i. Basis of Charge [Section 22]:
- Income from house property shall be Taxable the house property should consist of any building or land.
ii. The Gross Annual Value of the house property shall be higher of following:
- Expected rent
- Rent actually received or receivable after excluding unrealized rent but before deducting loss due to vacancy
iii. Deductions
Municipal Taxes
Standard Deduction [Section 24(a)]
30% of net annual value of the house property is allowed as deduction
Interest on Borrowed Capital [Section 24(b)]
Let-out property - Actual interest incurred on capital borrowed
Self-occupied property - Interest incurred on capital borrowed allowed as deduction upto Rs. 2 lakhs. The deduction shall be allowed acquisition or construction of house property is completed within 5 years.
Maximum loss set off allowed in a Financial Products year is limited upto Rs. 2 lakhs, remaining loss can be carried forward to future years, 8 years in total
Income from Capital Gains
Any Income derived from a Capital asset movable or immovable is Taxable under the head Capital Gains under Income Tax Act, 1961.Short Term Capital Gains:
- Sold a Capital asset within 36 months and Shares or securities within 12 months of its purchase then the gain arising out of its sales after deducting there from the expenses of sale (Commission etc) and the cost of acquisition and improvement is treated as short term capital gain and is included in the income of the Taxpayer.
Taxability of short term capital gains:
- Section 111A of the Income Tax Act provides that those equity shares or equity oriented funds which have been sold in a stock exchange and securities transaction Tax is chargeable on such transaction of sale then the short term capital gain arising from such transaction will be chargeable to Tax @10% upto assessment year 2008-09 and 15% from assessment year 2009-10 onwards.
- A Capital Asset held for more than 36 months and 12 months in case of shares or securities is a long term capital asset and the gain arising there from is a long term capital gain. Long term capital gains are arrived at after deducting from the net sale consideration of the long term capital asset the indexed cost of acquisition and the indexed cost of improvement of the asset.
Taxation of Long term capital gains
- The long term capital gains are Taxed @ 20% after the benefit of indexation as discussed above. No deduction is allowed from the long term capital gains from Section 80C to 80U. But in case of individual and HUF where the Income is below the basic exempted limit the shortage in basic exemption limit is adjusted against the long term capital gains.
Income from Profits and Gains of Business or Profession
Under Section 28, the following income is chargeable to Tax under the head "Profits and Gains of Business or Profession":
- Profits and Gains of any Business or Profession.
- Any compensation or other payments due to or received by any person specified in Section 28(ii).
- Income derived by a trade, professional or similar association from specific services performed for its members.
- The value of any benefit or perquisite, whether convertible into money or not, arising from Business or the exercise of a Profession.
- Any interest, salary, bonus, commission or remuneration received by a partner from firm .
- Fair market value of inventory as on the date on which it is converted into, or treated as, a capital asset determined in the prescribed manner.
- Income from speculative transaction.
Income from Other Sources
"Income From Other Sources" is any income which is not specifically Taxed under any other head of income will be
- Taxed under this head.
- Section 56(2)(i), Dividends
- Winnings from lotteries, crossword puzzles, races including horse races, card game and other game of any sort, gambling or betting of any form whatsoever, are always Taxed under this head.
- Interest Income
- Gifts received by an individual
Advantages of Filing Charitable Income Tax (IT) Returns
Eligibility
- No Benefits In the Future For Mere Filing Of NIL Income Tax Returns.
- Tax Returns Are Now Eligible Documents.
Tax Planning
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Risk
- Carry Forward Loss Only The Return Filed Before The Due Date
- Do Not Claim Wrong Income Tax Refunds
Compliance
- Compare The Services Not the Cost Of Filing Income Tax Returns.
- First Of Wholeheartedly Plan For Taxes, Pay Taxes, and Enjoying Without Non-Compliance.
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Document Required for E-Filing Income Tax Return
Proof of Income
- Form 16 Copy – Part A & Part B
- Fixed Deposits
- Capital Gain Statement Share Broking
- FD Interest Certificate
- Invoice Copy
- Contract Copy
Proof of Deduction
- Life Insurance Premium
- Medical Insurance Premium
- School Fees Receipts
- House Property Tax
- Interest Certificate Housing Loan
- Tax Savings Documents
- Additional Deduction Documents
This may come as a surprise but you don't need any documents or proofs to attach with your Income Tax Returns.
All you need is your Aadhar ID linked with your PAN.
You need documents ONLY IF YOU SEEK TO CLAIM DEDUCTIONS while filing Income Tax.
You DO NOT NEED TO ATTACH ANY DOCUMENTS in your IT return application. Fill your Income Tax return honestly and claim deductions that genuinely apply to your application.
You may need documents only if an Income Tax assessing officer sends you a notice asking you to present those documents before them. Till then, procure all the documents that may be needed and keep them safe.
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