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Queries
on the Income-Tax Act, 1961 |
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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. |
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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. |
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Q2
: Whether the Income Tax Act, 1961 is applicable to NGO's located
in North East India or in District of Laddakh ? Please clarify. |
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Ans
: Yes |
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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 ? |
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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). |
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Q4
: What is the procedure for registration of an NGO with the Income
Tax Department ? |
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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. |
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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? |
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: 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. |
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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 ? |
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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. |
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Q7
: Whether interest earned on investments of Corpus Fund is taxable
or is it exempt from Income-tax Act ? |
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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. |
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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 ? |
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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. |
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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 ? |
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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. |
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Q10
: What is the method of calculation of the application of income
for charitable or religious purposes in a particular year ? |
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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. |
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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 ? |
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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. |
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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 ? |
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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. |
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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. |
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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)]. |
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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? |
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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. |
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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. |
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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. |
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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 ? |
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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. |
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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. |
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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. |
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Q18
: Whether an NGO can carry on business with or without profit
? What are the consequences as per Income-tax Act, 1961 ? |
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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. |
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Q19
: Whether an NGO can give loans to another NGO under the provisions
of the Income-tax Act, 1961 ? |
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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. |
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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 ? |
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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 ! |
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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. |
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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. |
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Q22
: Whether an office-bearer of an NGO organisation can take salary
and other allowances out of the Income of the trust/society ? |
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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. |
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Q23
: What are the benefits available to donors who make Voluntary
Contributions to the NGOs under the Income-tax Act, 1961. |
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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. |
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Q24
: Whether a Voluntary Organisation can undertake any business
activity incidental to the object of the Trust ? |
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Ans
: Please refer to the answer of question 26.56 above. |
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Q25
: Define Corpus Fund.Whether Corpus Fund can be collected in
a box written and marked"Corpus Donation" ? |
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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. |
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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. |
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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. |
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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 ? |
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Ans
: No |
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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 ?
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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. |
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