practical Aspects Of NGOs
The Income Tax Laws speaks about “charitable or religious purpose”
Section 2(15) defines “charitable purpose” as including relief of the poor, education, medical relief, preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility.
Provided that the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a cess or fee or any other consideration, irrespective of the nature of use or application, or retention, of the income from such activity.
Provided further that the first proviso shall not apply if the aggregate value of the receipts, from the activities referred to therein, is Rs.25 lakhs or less in previous year.
We now discuss the taxation of NGOs.
Exemptions in respect of income from such purposes:
Income from property held under Trust shall be exempt to the extent applied for such purposes:
If applied in India by:
- Trust created before 1961, property held wholly or in part for such purposes
- Trust created after 1961, property held wholly for such purposes
- If applied outside India by:
- Trust created before 1952, for charitable or religious purpose
- Trust created after 1952, for charitable purpose for promoting international welfare in which India is interested
- If applied in India by:
- Voluntary Contribution:
- Donations with specific direction that they shall form part of corpus of Trust/Society/ Non-profit Company
Under Section 115BBC, anonymous donation shall be exempt as follows:
- Anonymous donation received by Trust/ Society/ Non-Profit Company established wholly for religious purpose
- Anonymous donation received by Trust/ Society/ Non-Profit Company established wholly for religious and charitable purpose made with specific direction that such donation is for any university/ educational institution/ hospital etc run by such Trust/ Society/ Non Profit Company.
- If net consideration utilized for acquiring a capital asset which is also to be held under trust upto the excess of amount utilized over cost of transferred asset
- Such income shall be exempt only if such business is incidental to the attainment of the objectives of the Organisation and separate books of accounts are maintained in respect of such business
- Capital Gain on transfer of property held under Trust:
- Profits and Gains from Business:
Such exemption is subject to accumulation, application and investment conditions.
The above benefits will be available only if the Non-profit Organisation gets itself registered under Section 12AA. The process of Registration under Income Tax Laws is as follows:
Application in Form 10A along with copies of following documents:
- In case of Trust: Trust deed and accounts for not more than preceding 3 years
- In case of Society: Memorandum of Association, Rules and Regulations and accounts for not more than preceding 3 years
- In case of Non Profit Company: Memorandum of Association, Articles of Association, Board Resolution for Authorization and accounts for not more than preceding 3 years
- The provisions of taxation benefit shall be available to such Organisation from the A.Y. relevant to the F.Y. in which application is made.
- The Principal Commissioner or Commissioner may call for such documents as he may deem necessary.
- After satisfying himself, he shall pass an order either registering or rejecting the application within 6 months from the end of the month in which application is made.