INCOME TAX

NPO TAXATION

12A• Receipts > 1.5

lakh• Required• No tax on Income

80G / 35AC

• Raising Funds?• Optional• Tax deduction for

donors

TDS• Large Payments?• Compulsory • Deduct & Deposit

Tax

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PAN / TAN

Permanent Account Number (PAN)

Form 49A

Apply before filing return 7-10 days

Tax Deduction Account Number (TAN)

Form 49B

Apply when deducting Tax

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12A EXEMPTION CONDITIONS

Charitable activities

Minimum spending 85%

Arm’s length transactions with key persons

Keeping funds in approved modes

Filing tax return annually

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UNSPENT FUNDS?

• Indefinite Accumulation

Upto 15%

• Use up next year• Carry forward Letter

Temporary under-spending

• Accumulate up to five years• Form 10; Board Resolution

Long Term Project

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KEY PERSON PAYMENTS

Key Persons?

• Managers, Trustees, Board Members, • Large donors• Related parties

Payments?• Salary, etc.• Use / sale / purchase of property

Care?• Identified and approved• Disclosed – form 10B• Reasonable

Implications • Loss of Tax Exemption

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ANNUAL TAX RETURN

Due Date • 30th September

Penalty • Rs. 100 per day

Enclosures• Audited Consolidated Accounts• Form 10B with annexure• TDS Certificates• Carry forward letter etc.

Form? • ITR 7

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NEW ITR 7

Revised Form • ITR 7

Information Sought

• Sec. 2(15)• Objects of general public utility?• Business Activities?

• Business Turnover?• FCRA

• Registration? • Amount Received?

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AUDIT REPORT

Form • 10B

Prepared by • Auditor

Shows• Amount

• Spent (incl. fixed assets)• Set apart• Carried forward

• Payments to key persons

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DONATIONS

80G APPROVAL

Donor’s Benefit • 50% deduction from taxable income

Validity • Lifelong

Form • 10G

Documents needed

• 12A registration • Trust Deed / Bylaws• Audited Accounts (up to 3 yrs.)• Activity Report (up to 3 yrs.)

Cash Donations • No deduction to donor above Rs. 10,000

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35AC APPROVAL

Donor’s Benefit • 100% deduction from taxable income

Validity• 3-5 years• For specific project only

Formalities• Apply to National Committee (Form)• Issue certificate to donors (58A)

Documents needed

• 12A registration • Trust Deed / Bylaws• Audited Accounts (up to 3 yrs.)• Activity Report (up to 3 yrs.)• Project Proposal• Project Budget

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ANONYMOUS DONATIONS

Problem • Donors w/o name and address

Section • 115BBC

Applies to • Wholly Charitable Organisations

Restriction • Higher of 1 lakh or 5% of donations

Impact • Pay tax @ 30% on excess

Solution • Encourage cheque donations• Record donor’s name and address

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SPECIAL ISSUES

BUSINESS-LIKE ACTIVITIES

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THE CHARITABLE TRUNK

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Donor Incentives

I Tax Exemption

35AC

80G 12A

10(23)(c)

Charitable Purpose

SEC. 2(15)Charitable Purpose

Conventional

Relief of the Poor

Education

Medical Relief

Modern

Environment

Monuments / Culture

Dynamic

Other useful purpose

Business ≤25 lakh

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DEALING WITH 2(15)

Ensure business is Incidental

Gross revenue ≤ 25 lakh

If not, spin off as a separate organisation

Form of organisation? For-profit forms

NPO w/o tax exemption

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INCIDENTAL BUSINESS

Incidental? Only activities connected with main objects

Gross Business Turnover Any amount for first five categories

≤ 25 Lakh for Sixth Category

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BUSINESS: ACCOUNTING/ AUDIT

Separate books of account – sec. 11(4A)

Attach Audited P&L A/c

Transfer profit to main I&E A/c

Form 3CD audit report if Fees Turnover > 25 lakh

Sale Turnover > 1 crore

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FURTHER READING

Accountable 15 : Basics of Tax Registration

Accountable 16 : Income Tax Return

Accountable 91 : Income Tax Exemption

Accountable 141 : Charitable purpose and Income Tax

Auditable 2 : Charitable Purpose - 1

Auditable 3 : Charitable Purpose - 2

Accountable 142 :Eleventh Commandment

Accountable 143 : Taxation Tricks and Traps

Auditable 12 : Taxing NGO Programs Outside India

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