GST, Income Tax, FCRA & Other Compliances of Charitable Entities

1. Income Tax Related Compliances

a. Registration under Section 12AB

The trust can carry on the charitable or religious activities as per the objects for which it was formed. However, in order to claim tax exemption of its receipts and income, it needs to get registered under the Income Tax Act, 1961. Section 12AB registration allows the trusts and other non-profit organizations to claim an exemption under the Income Tax Act, 1961.

As per Rule 17A, the application shall be made in Form 10A/10AB and shall be accompanied by the following documents:

• • Where the applicant trust is established or created under an instrument, then a self-certified copy of such instrument. In case, it is established or created otherwise, then the document evidencing the creation or establishment of trust shall be provided.
  • Self-certified copies of registration with Registrar of Public Trusts
  • Self-certified copy of registration under the Foreign Contribution Regulation Act if the trust is registered under the same.
  • Self-certified copy of existing order that granted registration under Section 12A, 12AA, or 12AB. If the registration was not granted, then a self-certified copy of the order rejecting the application shall be furnished.
  • Where the applicant trust was in existence in years prior to the year of application for registration, then the self-certified copies of the annual accounts for a maximum of 3 prior years shall be provided, if the accounts were made. If the trust also held a business undertaking during such years, self-certified copies of the annual accounts and audit report of such business undertaking shall also be provided.
  • Self-certified copies of the documents that evidenced adoption or modification of the objects shall be provided.
  • A note on the activities undertaken by the applicant trust.

The Principal Commissioner or the Commissioner, upon receipt of the application for registration of the trust, shall call for such information and documents as he may require and pass an order in writing granting the registration to the trust or refusing to register thereof.

b. 80G Registration: Section 80G allows the donor making eligible donations to trust or any other charitable organization to claim deduction under the Income Tax Act, 1961. However, the recipient trust or the organization must obtain 80G registration in order to make their donors eligible to claim the deduction.

[Note: With the introduction of new section 12AB, all the existing registered trusts shall be required to obtain fresh registration under section 12AB of the Income Tax Act, 1961 in order to be eligible to claim exemption u/s 10 or 11].

The applicant institution shall make an application in Form No. 10A/10AB, as the case may be to the Principal Commissioner or the Commissioner.

Following documents (self-certified) shall accompany the application form:

• • Copy of the Instrument in case the institution is established or created under an instrument. Otherwise, self-certified copy of the document evidencing the establishment or creation of the institution shall be provided.
  • Copy of the Registration with Registrar of Public Trusts, Registrar of Companies, Registrar of Societies, or the firms.
  • Copy of the registration under the Foreign Contribution Regulation Act, 2010 (if applicable)
  • Copy of the registration order of the existing registration. In case the registration was rejected, furnish the order of rejection thereof.
  • Where the institution was in existence before the application, then self-certified copies of the annual accounts of a maximum of 3 prior years shall be furnished.
  • Note on the activities of the applicant.

The Form 10A/10AB shall be furnished electronically through the digital signature (in case the return will be furnished under the digital signature) or the electronic verification code. The Principal Commissioner or the Commissioner shall pass an order in writing in Form 10AC for the approval of the registration along with issuing a 16-digit alphanumeric Unique Registration Number (URN).

In case of the details are not fully provided or incorrect or false information has been furnished, then the application granted in Form 10AC can be cancelled and the URN shall be deemed to have never been granted.

c. Form 10BD/10BE: Under this form, the trust receiving donation shall file a statement of donation every year to the Income Tax Department and also issue a certificate of donation to the donor in Form 10BE. The last date for filing the form for every financial year is 31st May of the next financial year.

Once Form 10BD is successfully filed, Form 10BE is generated under filed forms. These certificates provide the details of donation made by the donors to the trust and the same has to be shared with them for their proof to claim deduction by them u/s 80G while filing their ITR.

Consequence for non-filing Form 10BD: The reporting entity is mandated to comply with the filing of Form 10BD and failure to comply will attract a fee of Rs. 200/- per day of delay as per new inserted section 234G.

If the trust or institution fails to file such statement, a penalty under Section 271K shall be leviable which shall not be less than Rs.10,000/- and which may extend up to Rs. 1 lakh. For all donations received during a previous year to be reported in Form No. 10BD

d. Form 9A: If a trust or institution is unable to apply 85% of its income from property held under them, the income is still exempt if the following conditions are met.

• • the whole or any part of the income has not been received during the previous year; or
  • for any other reason, the assessee has an option to:apply such income referred to in clause (i) for such purposes during the previous year in which it is received or during the previous year immediately following the said previous year apply such income referred to in clause (ii) for such purposes during the previous year immediately following the previous year in which the income was derived.

Such option is to be exercised in Form 9A to be furnished electronically with or without digital signature by the trust within the time allowed for filing return of income u/s 139(1).

e. Form 10: The organization desiring to accumulate funds under section 11(2) (condition: –if, in the previous year, the income applied to charitable or religious purposes in India falls short of eighty-five per cent of the income derived during that year from property held under trust) has to give a notice in writing to the Assessing Officer of its intention and specific reasons for such accumulation in Form 10 under Rule 17 of the Income-tax Rules; 1962. This notice has to be made before the expiry of the due date of filing return under section 139(1). Amount can be accumulated for specific purpose and can be utilized in the next 5 years and should be invested as per Section 11(5) of the Income Tax Act, 1961.

Thus, if the form No 10 is not submitted on or before the due date specified under Section 139(1) for furnishing the return of income for the previous year then, the exemption will be denied ipso facto.

f. Form 10B (Audit Report): Form 10B is to be furnished by a trust or institution that has been registered u/s 12A or who has submitted an application for registration by filing Form 10A. Form 10B is an audit report which is provided by a CA upon nomination by the taxpayer. Form 10B can be accessed and submitted in the online mode only and it is to be filed on or before the specified date referred to in Section 44AB, i.e., a month prior to the due date for furnishing the Return of Income under sub-section (1) of Section 139. application for condonation of delay in filing of Form No. 10B for a period beyond 365 days but up to 3 years. Any delay beyond 3 years will be condoned by the CBDT only. Further, in order to obtain the condonation, the applicant must prove that there exists reasonable cause which prevented them from filing of such forms within the stipulated time. The application for condonation of delay in filing of Form 10B shall be preferably disposed within a period of three months.

g. Form 10BB: Form 10BB aids the educational institutions to claim an exemption under Section 10 of the Income Tax Act, 1961. If a charitable trust or educational institution is registered under section 12 or 12AA, then it can claim exemption under section 10(1) & 10(23C) of the Income Tax Act, 1961.To file for an exemption under section 10(23C) of the Act, the organizations have to file income tax return through ITR – 7 & an audit report via Form 10BB.

h. ITR: Any registered charitable entity must file returns in ITR-7 without fail as per the Income Tax Act, 1962.

2. GST Related Compliances

a. GST Applicability: There is no exemption for supply of goods by charitable trusts. Thus, any goods supplied by such charitable trusts for consideration shall be liable to GST. For instance, sale of goods shall be chargeable to GST.However, the income from only those activities listed below is exempt from GST. Thus, there could be many services provided by the charitable and religious trust which are not considered as charitable activities. Therefore exemption is given to the charitable trusts, only if the following conditions are satisfied. 

i. Entities must be registered under Section 12AA of the Income tax Act, and

ii. Such services or activities by the entity are by way of charitable activities.

Thus, it is essential that the activities must conform to the term “charitable activities’ which has been defined in the notification as under “charitable activities” means activities relating to:

(i) public health by way of:

(A) care or counseling of (I) terminally ill persons or persons with severe physical or mental disability; (II) persons afflicted with HIV or AIDS; (III) persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or

(B) public awareness of preventive health, family planning or prevention of HIV infection;

(ii) advancement of religion, spirituality or yoga.

(iii) advancement of educational programmes or skill development relating to

(A) abandoned, orphaned or homeless children; (B) physically or mentally abused and traumatized persons; (C) prisoners; or (D) persons over the age of 65 years residing in a rural area;

(iv) preservation of environment including watershed, forests and wildlife. 

3. FCRA Compliances

 a. FCRA Registration: FCRA registration are 2 modes of getting the FCRA registration permission to receive “Foreign Contribution”. 1^st is to get the FCRA registration & other one is to get prior permission under FCRA. Form FC-3A for registration and Form FC-3B for prior permission shall be submitted online along with a fee of INR 10,000 in case of registration and INR 5000 in case of prior permission. FCRA registration is valid for five years and it shall be renewed before 6 months of expiry of 5 years period in Form FC-3C. FCRA bank account must be with SBI, Main branch, Aadhar number, & DARPAN Id is compulsory.

b. Form FC-4: Every FCRA-NGO has to submit an Annual Return to the Ministry of Home Affairs (MHA), online before 31st December for its foreign fund receipts for the previous financial year. Also, if FCRA NGOs do not receives foreign contribution Filing a Nil return is mandatory. Until 2015, this format was called the FC-6; later, with a few modifications, it was called the FC-4 form. These annual returns are available online for anyone to read or download at the website of FCRA.

The delay in filing of Annual return is an offence and attracts penalty as per the provisions of section 37 of the FCRA law. The penalty for the same is Rs. 1,00,000/- or 5% of the foreign contribution received during the period of non-submission, whichever is higher

c. Form FC-6A: Intimation of change of name and/or address within the state of the association shall be filed in Form FC-6A within 15 days from the date of such change.

d. Form FC-6B: Intimationof change of nature, aims and objects and registration, shall be filed in Form FC-6B within 15 days from the date of such change.

e. Form FC-6C: If there is change in designated bank branch, bank account number of designated FC receipt-cum-utilization bank account, the intimation for the same has to file in Form FC-6C within 15 days from the date of such change.

f. Quarterly Intimation of Donation received to be filed with in 15 days from the end of the quarter online on FCRA portal

 g. FCRA registration is not required if donor is Indian passport holder and donation can be received in Non-FCRA account.

h. FCRA owned assets doesn’t belongs to the charitable entity and needs to be transferred to the Central Government in the manner as may be prescribed.

 4. CSR Registration

 a. Form CSR-1:Now, as per Notification issued by Ministry of Corporate Affairs dated 22nd January 2021, it is mandatory for all NGO’s which wants to raise CSR Funding to enroll in Form CSR-1 with MCA w.e. f 01/04/2021 to get CSR Funding.

The Ministry of Corporate Affairs (MCA) mandated entities undertaking Corporate Social Responsibility (CSR) to file eForm CSR-1 for all their CSR projects from 1 April 2021. The NGOs must register with the Central Government to undertake CSR activities funded by corporations and companies. This registration ensures effective monitoring of the CSR spending in the country.

5. Other General Compliances

Privacy Policy

I T Policy

Employee Policy

ESI/ EPF Act/ Minimum Wages Act/ Gratuity Act/ Bonus Act

Shops & Establishment etc

Companies Act, 2013

All will be applicable to Charitable entity if in general those acts / policies are applicable to other commercial entities and there are no specific exemption

6. Taxability of Incomes received by Trust

Category of income	Income subject to tax	Taxability
Donations/voluntary contributions	Voluntary contributions with a specific direction to form part of corpus of trust or institution	Exempt*
	Voluntary contribution without such specific direction	Forms part of income from property held under trust
Anonymous donations i.e., donations where donee does not maintain record of identity/any particulars of the donor	Donation exceeding higher of: i) 5% of total donations received by trust or ii) Rs 1,00,000	Taxed at 30%
	Anonymous donation received by trust established wholly for religious and charitable purpose	Taxable in the same manner as voluntary contributions (without specific direction) as above
Income from property held under trust for charitable or religious purpose	Income applied for charitable or religious purpose in India	Exempt*
	Income accumulated or set aside for the application towards charitable or religious purpose in India	Exempt* to the extent of 15% of such income. This means at-least 85% of income from property to be applied for charitable and religious purpose in India as above and balance 15% can be accumulated or set aside.
Income from property held under trust created for charitable purpose which tends to promote international welfare in which India is interested	CBDT either by general or special order has directed that such income shall not be included in the total income of trust	Exempt*
Capital gain from asset held under trust in whole	Net consideration is utilised fully for acquiring another capital asset	Entire capital gain is deemed to have been applied for charitable and religious purpose and hence is exempt*
	Net consideration is utilised partially for acquiring another capital asset	Capital gain utilised in excess of cost of old asset transferred is considered to have been applied for charitable and religious purpose and is exempt*

* Only Charitable/ religious trust or institution registered under Section 12AA enjoys the exemption

7. Donations to other charitable institutions can be of three types (Other Than FCRA):

It has been held in various cases that donation made by one Charitable Organisation to another shall be considered as application of income for the objectives of the organisation provided the donee organisation also have objects similar to the object of donor organisation.

(a) DONATION OUT OF CURRENT INCOME: Wherever inter organizational donations are made out of current year’s income it is considered as application of funds under the provisions of the act. There is no apparent bar on payment or credit to such other organisation out of previous year’s income subject to the provisions of section 11(1).

(b) DONATION OUT OF ACCUMMULATED INCOME: The new Explanation inserted long back by the Finance Act, 2002, to section 11(2) has debarred organisation from applying its accumulated or set-apart income by way of payment or credit to other such organisation. If an organisation makes donation from funds accumulated under section 11(2) than it would be considered as violation of the section, and the amount so donated shall be deemed the income of such person of the previous year in which it is or credited or paid.

As per proviso to sub-section (3A) of section 11, inter-charity donation out of accumulated funds will be permissible in case of dissolution of a Charitable Organisation.

(c) DONATION TO CORPUS FUND: As per the explanation 2 added to section 11(1) by finance act 2017, any contribution by a charitable or religious trust or institution to any other trust or institution registered u/s 12AA, with a specific direction that it shall form part of corpus of recipient trust/institution shall not be treated as application of income u/s 11 for the donor trust/institution.