charitable trusts compliances & requirements-ca namrata dedhia-18042015

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CHARITABLE TRUSTS – VARIOUS COMPLIANCES & REQUIREMENTS - CA Namrata Dedhia Partner, HDS & Co. Chartered Accountants Organised by – Borivali (Central) CPE Study Circle of WIRC of ICAI

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Page 1: Charitable trusts compliances & requirements-CA Namrata Dedhia-18042015

CHARITABLE TRUSTS –

VARIOUS COMPLIANCES & REQUIREMENTS

- CA Namrata DedhiaPartner, HDS & Co. Chartered

Accountants

Organised by –Borivali (Central) CPE

Study Circle of WIRC of ICAI

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OUTLINE

Background Applicable Laws Registration Other compliances

18th April 2015

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BACKGROUND

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BACKGROUND

No single legislation to comprehensively governs the sector and similarly no single regulator exists in India,

Subject of concurrent list => Different legal provisions at national and state level,

Distinction of caste, colour and creed not permitted in formation of a charity,

In general, formal registration not mandatory.

18th April 2015

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BACKGROUND

Section 2(15) of IT Act – “charitable purpose" includes relief of the poor,

education, medical relief, preservation of environment (including watersheds, forests and wildlife) and 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 twenty-five lakh rupees* or less in the previous year;

18th April 2015

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BACKGROUND

Section 9(1) of the Bombay Public Trusts Act, 1950 charitable purpose includes:

1) relief of poverty or distress,2) education3) medical relief3A) provision of facilities for recreation or other leisure time occupation (including assistance for such provision), if the facilities are provided in the interest of social welfare and public benefit, and4) the advancement of any other object of general public utility, but does not include a purpose which relates exclusively to religious teaching or worship.

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BACKGROUND

Section 9(2) of the Bombay Public Trusts Act, 1950 Facilities will be considered to be provided in the interest

of social welfare if –a) The facilities are provided with the object of improving the conditions of life for the persons for whom the facilities are primarily intended, andb) either those persons have need of such facilities as aforesaid by reason of their youth, age, infirmity or disablement, poverty or social and economic circumstances, or the facilities are to be available to the members of the public at large

Section 9(3) of the Bombay Public Trusts Act, 1950 provision of facilities at village halls, community centres

and women institutes, and provision and maintenance of grounds and buildings to be used for purposes of recreation and leisure time occupation

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BACKGROUND

Section 20 of Societies Registration Act, 1860 – Charitable societies, Military orphan funds, Societies established for the promotion of

science, literature, or the fine arts, For instruction, the diffusion of useful

knowledge, the diffusion of political education, For the foundation or maintenance of libraries or

reading rooms for general use among the members or open to the public, or public museums and galleries of paintings and other works of art, collections of natural history, mechanical and philosophical inventions, instruments, or designs.18th April 2015

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BACKGROUND

Section 8 of Companies Act, 2013 – Company having in its objects the promotion of

commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object;

intending to apply its profits, if any, or other income in promoting its objects; and

intending to prohibit the payment of any dividend to its members.

FCRA, 2010 – A person having definite cultural, economic,

educational, religious or social programme can receive FC only after obtaining certificate of registration or prior permission from the Ministry of Home Affairs.

18th April 2015

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APPLICABLE LAWS

Indian Trusts Act, 1882 Bombay Public Trusts Act, 1950 Societies Registration Act, 1860 Companies Act, 2013 Income Tax Act, 1961 Foreign Contribution Regulation Act, 2010

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REGISTRATION REQUIREMENTS

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REGISTRATION – BPT ACT

Application u/s. 18 in Schedule II giving details of – Proposed name of the trust, Name of the trustees and managers with their

addresses, Mode of succession to trusteeship and

managership, Objects of the trust, Details of documents creating the trust along

with copies, Details of scheme relating to trust, along with

copies, List of movable property with estimated value

of each class of such property, Details and estimated value of immovable

property along with complete identification with certified copies of entries in the records of city survey record or municipal record relating to the properties

18th April 2015

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REGISTRATION – BPT ACT

Sources of income of trust Average gross annual income Average annual expenditure Amount of average annual expenditure on

remuneration to trustees and managers, establishment and staff, religious object, charitable object, and miscellaneous items

Particulars of encumbrances on trust property Particulars of title deeds pertaining to trust -

property and the names of trustees in possession thereof

Communication address of trustee Affidavit by trustees making the application Consent letter signed by other trustees18th April 2015

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REGISTRATION – BPT ACT

Court-fee stamp of Rs.100 to be affixed on application

Application fees to be paid ranging from Rs. 3 to Rs. 25. depending on the value of the property

Application to be made to the jurisdictional Regional Deputy or Asst. Charity Commissioner within 3 months of creation of trust

Formal hearing is conducted for verification of details and thereafter the certificate of registration is issued

Within 3 months of creation of trust, file memorandum in Form IIA containing details of immovable property to the jurisdictional Sub-registrar under the Indian Registration Act.

18th April 2015

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REGISTRATION – IT ACT

Application u/s. 12A in Form No 10A along with – Original copy or certified copy of trust deed,

with one copy thereof. If the trust/institution is created otherwise than

under an instrument, documents evidencing the creation of trust/institution, with one copy thereof,

Where the trust/institution has been in existence during any year(s) prior to financial year in which application, two copies of accounts of trust/institution relating to prior year or years (maximum 3 years immediately preceding the year in which application is made)

Application to be made to Principal Commissioner or Commissioner, who will pass the order accepting or rejecting the application within 6 months from end of the month in which application is made.

18th April 2015

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REGISTRATION – IT ACT

Points to considered when making an application – there should be a legally existent entity, which can be

registered; it should have a written instrument of its creation or

written document evidencing its creation; all its objects should be charitable or religious in nature; its income and assets should be made applicable towards

objects only, mentioned in the object clauses, and Rules and Regulations;

no part of its income should be distributable or distributed, directly or indirectly, to its members, directors or founders, related persons or relatives etc. claiming through them; and

in case of dissolution, its net assets after meeting all its liabilities, should not be revertible or reverted to its founder, members, directors or donors etc., but used for the objects

18th April 2015

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REGISTRATION – IT ACT

Application for 80G to be made in Form 10G along with - Copy of registration granted under section 12A or copy

of notification issued under section 10(23) or 10(23C); Note on activities of institution or fund since its inception

or during the last three years, whichever is less Copies of accounts of the institution or fund since its

inception or during the last three years, whichever is less.

Application has to be made in triplicate Within 6 months from date of application,

commissioner shall either accept the application and grant a certificate specifying the year or years for which it is valid or reject the application after giving an opportunity to be heard and recording reasons in writing.

18th April 2015

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REGISTRATION - FCRA

An Application in Form FC-3 required to be submitted online to the Foreigners Division of Ministry of Home Affairs.

Hard copy of the same, duly signed, to be submitted within 30 days of online application alongwith – Certified copy of registration certificate or Trust

deed, as the case may be; Details of activities during the last three years; Copies of audited statement of accounts for the

past three years (Asset and Liabilities, Receipt and Payment, Income and Expenditure);

Copy of PAN Fees of Rs. 2,000/-

If the application is incomplete, it will be rejected.

18th April 2015

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REGISTRATION - FCRA

If the specified conditions are satisfied, the registration certificate or prior permission is to be granted within 90 days from date of receipt of application

In case the certificate or permission is not granted within 90 days, the same shall be communicated along with reasons to the applicant.

Normally, registration is granted to persons existing for three years or more, with at least Rs. 10 lakhs of spendings on its purposes during the three years.

Registration certificate is valid for 5 years, after which it must be renewed by making application in Form FC-5

18th April 2015

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REGISTRATION - FCRA

Specified conditions include – The applicant should not be

Fictitious or benami, Prosecuted or convicted for conversion from one

religion to another, or for creating communal tension or disharmony,

Found guilty of misutilisation of funds, Engaged in propogation of sedition, Likely to use FC for personal gains, In contravention of any provisions of FCRA

The applicant should have undertaken reasonable activity in the chosen field or should have prepared a reasonable project for the benefit of the society,

18th April 2015

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REGISTRATION - FCRA

In case of an individual, the individual, or in case of any other person, its directors or office bearers, should not have been convicted under any law or any prosecution for any offence should not be pending against them,

Acceptance of FC should not be likely to affect prejudicially – The sovereignty and integrity of India, Security, strategic, scientific or economic interest of India, Public Interest, Freedom or fairness of any election, Friendly relation with any foreign state, Harmony between various castes or communities,

Acceptance of FC should not lead to incitement of an offence or endanger the life or physical safety of any person.

18th April 2015

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PRIOR PERMISSION - FCRA Application for prior permission to be made

online in Form FC-4 – Hard copy of the same, duly signed, to be

submitted within 30 days of online application alongwith – Certified copy of registration certificate or Trust

deed Commitment letter from foreign donor

specifying the amount of foreign contribution Copy of the project report for which foreign

contribution is solicited/ being offered Copy of the PAN Fees of Rs. 1,000/-

Each Prior permission application should be for receiving a specific amount, for a specific purpose and from a specific donor.

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OTHER COMPLIANCES

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COMPLIANCES UNDER BPT ACT Intimate details of any changes to Charity

commissioner within 90 days of change – In Schedule IIIA where the change relates to

immoveable property, In Schedule III in all other cases

Prior permission of Charity commissioner required in case of – Further investment in immoveable property,

and sale, exchange, gift of any immovable

property, lease exceeding a period of 3 years in case of non-agricultural land/building, lease exceeding 10 years in case of agricultural land

Prior permission of Charity commissioner required for lending moneys to the trustee.

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COMPLIANCES UNDER BPT ACT Contribution payable to Public Trust

administration Fund @ 2% of gross annual income less deductions prescribed u/r. 32

Gross annual income excludes corpus donations

Prescribed deductions – Donations received from other public trusts and

dharmadas Grants received from government & local

authorities Interest on sinking and depreciation fund Amount spent for secular education/or medical

relief/veterinary treatment of animals Expenditure incurred from donations for relief of

distress caused by natural Calamity Deduction of land revenue, rent payable to

landlord, cost of production out of income from land used for agricultural purpose

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COMPLIANCES UNDER BPT ACT

Deductions of municipal taxes, ground rent, cesses, insurance premia, repairs @10% of gross rent of let out buildings out of income from land used for non agricultural purposes

Cost of collection of income or receipts from securities, stock etc. @1% of such income

Deduction in respect of repairs of building (yielding no income) @10% of estimated gross annual rent.

Trusts exempt from payment of contribution – Public trusts having gross annual income of Rs.

25000 or less. Public trusts exclusively for

advancement/propagation of secular education/ medical relief/veterinary treatment.

Recognized public libraries and reading rooms. Trusts exclusively for purpose of relief of distress

caused by natural calamity.

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COMPLIANCES UNDER BPT ACT Budgets to be prepared in Schedule VIIA

and submitted to the Charity Commissioner one month before the commencement of the accounting year – In case of public religious trust, if annual

income exceeds Rs. 5,000, In case of other trusts, if annual income

exceeds Rs. 10,000 Accounts to be maintained and Balance

sheet to be prepared in Schedule VIII and Income and Expenditure Account in Schedule IX

Accounts to balance on 31st March every year

Trust having annual income exceeding Rs. 15,000 has to get accounts audited.

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COMPLIANCES UNDER BPT ACT Audit should be completed within 6 months

of close of accounting year and filed with Charity Commissioner within a fortnight of the audit.

Trusts exempt from audit must file details of income in Schedule IX-A and Details of expenditure in Schedule IX-B within 3 months of close of accounting year.

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RECEIPT OF FUNDS

FC received should be deposited only in the designated FC bank account.

Association should keep record of all FC clearly indicating the names of donors, their locations and the purpose for which it has been received.

FC can be treated as Corpus donation only if it is supported by written consent of the donor.

Donation received through donation box should be treated as FC if it has been received in foreign currency.

10th January 2015

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UTILISATION OF FUNDS

FC should be utilized for the purpose it has been received.

Not more than 50% of the FC received should be utilized for administrative expenses, except with the prior approval of the Central Government.

It cannot be invested in speculative business. However, it can be invested in Bank/ Govt approved financial institutions which guarantee a fixed return.

Every asset purchased should be in the name of association

Interest earned on FC should also be utilized towards its activities/ projects.

10th January 2015

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RESTRICTION ON TRANSFER OF FUNDS FC cannot be transferred to any person who have

not obtained registration or prior permission. However, upto 10% of the total FC received in a

financial year, may be transferred to any person who has not been granted registration or prior permission, only after obtaining the permission of the Central Government.

Such an approval is not required if payment is made to Self Help Groups or individuals for whose benefit the amount is received or if FC received is for providing direct financial assistance as charity.

For extending loans to Self Help Groups, approval of the Government is required.

10th January 2015

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MAINTENANCE OF ACCOUNTS Associations are required to maintain a

separate set of account or records exclusively for the FC received and utilized.

Any standard or acceptable method of accounting can be used for maintaining books of account for FCRA purposes

All accounting statements, annual return and statement of account from the bank of the designated FC account should be preserved at least for a period of six years.

Associations should maintain separate register of investments and every register of investment must be submitted for audit.10th January

2015

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MAINTENANCE OF ACCOUNTS Interest on FC should be shown as a

secondary FC received in the year in which it is earned.

Proper accounts should be maintained to show apportionment of expenditure between local funds and FC.

A foreign security is not a permissible investment under the IT Act and should be liquidates and converted into funds or assets.

Association receiving FC in excess of Rs. One Crore in a financial year are required to place the summary data on receipts and utilization of the FC for the year of receipt as well as for one year thereafter in the public domain.

10th January 2015

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AUDIT AND REPORTING

The association should submit annual report in Form FC-6 accompanied by Audited Statement of Accounts for every financial year within nine months of the end of the financial year

The report should be duly certified by a Chartered Accountant.

Form FC-6 should be accompanied with a copy of duly certified statement of FC account from the bank

Filing of report is a must even if no FC has been received during a financial year.

10th January 2015

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QUESTIONS

10th January 2015

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HDS & Co. Chartered Accountants

THANK YOUCA Namrata Dedhia

HDS & Co. Chartered [email protected]

10th January 2015