Important Points Related To Income Tax Compliance for Charitable & Educational Institutions AY 2023-24

Some Important Points Related To Taxation (Under Income Tax Act) Of Charitable Etc. Institutions (For Ay 2023-24)

INTRODUCTION-

Recently, many amendments have been made under the income tax act, 1961 relating to taxation of charitable, religious etc. Institutions. Considering them many practical issues are there which are to be considered for ensuring proper income tax compliances regarding these institutions. In this article an attempt has been made to discuss many practical aspects and issues relating to taxation of above institutions. There may be large no. of issues regarding taxation of these entities but in this article only most commonly faced issues have been discussed.

Institutions Registered Under Section 12AB or Approved Under Section 10(23C)(vi) Claiming Exemptions:

(1) Form 9A/Form 10 Deadline: In case of deemed application / accumulation, the form 9A / form 10 may be furnished up to 30^th November, 2023.

(The original last date was 31^st August, 2023 but vide CBDT circular no. 16/2023 dated 18.09.2023 it has been clarified that deemed application / accumulation may not be denied if above forms are furnished up to 30^th November, 2023). (However, from the point of view of audit evidence, it is desirable to furnish the same prior to filing of tax audit report in form no. 10B / 10BB as the auditor is required to mention about the above deemed application / accumulation in his tax audit report).

(2) The tax audit report in form 10BB / 10B [u/s. 12A(1)(b)] has to be furnished up to 31^st October, 2023. However, in cases where total income before giving effect to section 11 and 12 (practically gross receipts) are not more than Rs. 2.50 lacs, there is no liability for tax audit in form 10B / 10BB.

(3) The tax audit u/s. 44AB is not required even if the annual gross receipts from charitable, religious etc. activities exceed Rs. 1 Cr. However if the institution is also engaged in any business activity and has income chargeable under the head “profits and gains from business”, it may have an additional liability for audit u/s. 44AB (relating to business transactions) apart from audit liability u/s. 12A(1)(b) in Form no. 10B / 10BB.

(4) Income tax return is to be furnished in form ITR 7 up to 30^th November, 2023 (original due date in audit cases was 31^st October, 2023 but now the same has been extended to 30^th November, 2023 by CBDT circular no. 16/2023 dated 18.09.2023).

(5) Many institutions which were granted provisional registration U/s. 12AB / approval U/s. 10(23C)(vi) but could not apply for final registration / approval within required time period may have to face difficulties. In such cases such institutions may now try to apply for final registration and may proceed like registered entity and may seek relief in appeal etc. proceedings (in case any adverse action is taken by the IT Department). The auditor of such institution should also remain careful and should disclose all the facts clearly in his audit report in form no. 10B / 10BB.

(6) The accumulation in excess of permissible limits is taxable U/s. 115BBI at the rate of 30%. Thus, benefit of basic exemption limit / benefit of slab rate taxation may not be available in such cases. Practically if gross receipts – application – deemed application in form 9A – accumulation in form 10 = is a positive figure then that surplus amount may be taxable at the rate of 30% by virtue of section 115BBI. The tax is leviable even if the above net amount is not more than Rs. 2.50 lacs.

Educational Institutions Eligible for Exemption Under Section 10(23C)(iiiad)

EDUCATIONAL INSTITUTIONS NOT REGISTERED U/S. 12AB / NOT APPROVED U/S. 10(23C)(vi) BUT ARE ELIGIBLE FOR EXEMPTION U/S. 10(23C)(iiiad) –

(1) This exemption is available only for educational institutions whose aggregate annual receipts are not more than Rs. 5 Crore. This limit is common limit for all the educational institutions run by a single entity.

(2)This exemption may be available only in cases where the educational activities are being conducted under institutional format (e.g., trust, society, section 8 companies etc.). Where educational activities are being conducted under any other form (e.g., individual, HUF, non section 8 company, LLP, partnership firms etc.) this exemption may not be available.

(3) For the purpose of this exemption, the words “education” may mean formal education only (for example education provided in schools, colleges etc.). This may not cover any other form of education e.g., vocational training etc. Further, the “education” should also be sole purpose of the institution. If it is only a part of various different objects then this exemption may not be available. Therefore, before claiming the above exemption, the objects mentioned in by laws / trust deed etc. should be carefully studied.

(4) This exemption is available only for educational institutions whose object is not to earn profit. However, there may not be any ineligibility for exemption merely because surplus has aroused unintentionally.

(5) In such cases no tax audit in form no. 10B / 10BB is required.

(6) The tax audit u/s. 44AB is also not required even if the annual gross receipts from educational (charitable) activities exceeds Rs. 1 Cr.

(7) Only furnishing of return in form no. ITR 7 is required in such cases.

(8) The PAN no. is to be obtained in the name of the society etc. running the educational institution. Similarly, the return is also to be filed in the name of the above such society etc. only. No PAN is to be obtained in the name of the educational institution and also no ITR is required to be filed in the name of the educational institution. For example, if a society XXX educational society is running a school XXX public school, then both PAN and ITR should be in the name of XXX educational society and not in the name of XXX public school. Similarly, if the society etc. is running more than one educational institution then the financial statements of all such institutions should be consolidated and ITR of the society etc. should be filed on the basis of consolidated financial statements.

(9) From practical point of view, It should also be seen that whether the educational institution is affiliated with State Government Educational Board / CBSE etc. (Not necessary but desirable for better compliances).

(10) Some time it happens that many institutions voluntarily / inadvertently obtains registration U/s. 12AB or obtains approval U/s. 10(23C)(vi) despite their eligibility for exemption U/s. 10(23C)(iiiad). The probable reason for the same may be the ignorance / that the institution may also want approval U/s. 80G(2)(a)(iv) / their aggregate annual receipts may be likely to exceed above limit of Rs. 5Cr. in near future. In such cases, the institution may either comply with the provisions related to registration / approval (as mentioned above) and may continue their registration / approval. Alternatively, they may surrender the unrequired registration / approval and may claim exemption U/s. 10(23C)(iiiad). However, before surrender of registration etc., the institution must assess its impact regarding taxation of earlier year’s income etc.

(11) For AY 2023-24 the due date for filing of the ITR was – (a) up to 31^st July, 2023 for persons which are not liable for audit under the Income Tax Act or under any other Indian law ; and (b) 31^st October, 2023 for companies and for persons who are liable for audit under the Income Tax Act or under any other law. The same has been extended to 30^th November, 2023 (vide CBDT circular no. 16/2023 dated 18.09.2023) for companies and persons liable for audit and are filing return in ITR 7.

(12) In view of the above, the due date for filing of ITR 7 for section 8 companies is 30^th November, 2023.

(13) In relation to educational Institutions claiming exemption U/s. 10(23C)(iiiad) there is no liability for audit under the Income Tax Act. Now for deciding the correct due date in such cases (for non section 8 companies, trusts, societies etc.) it is to be considered that whether there is liability for audit under any other law. Here it is mentionable that, this liability may be generally under the law under which the institution has been constituted (e.g., under Trust Act or under Societies Registration Act etc.). For example – under Section 28 having heading “Audit and Inspection” covered under CHAPTER VI of MP Societies Registration Act, 1973 there is liability for audit. So in such cases the due date for furnishing of ITR 7 may be 30^th November, 2023.

(14) Here it is to be noted that mere requirement for audit under any other law is sufficient for 30^th November, 2023 extended due date. Actual conduct of audit under that law may be desirable but may not be compulsory for deciding the due date of filing of ITR. One more thing which is to be considered here is that while generating UDIN it will be desirable that the auditor should mention that the audit is being conducted under any law and is not simply an audit of any financial statement for ensuring true and fair view. An another important point is also here that in form ITR 7 the date of furnishing of audit report is also asked. So it should be ensured that the educational institution has furnished the audit report to the concerned authority before filing of the ITR.

INSTITUTIONS NOT REGISTERED U/S. 12AB OR NOT APPROVED U/S. 10(23C)(vi) OR NOT ELIGIBLE FOR ANY EXEMPTION UNDER SEC 10 OR ANY OTHER SECTION-

01. These institutions are not required to furnish tax audit report in form no. 10B / 10BB.

02. They are also not entitled for any accumulation / set aside etc. therefore form no. 9A and 10 are not applicable to them.

03. They have to furnish their return in form ITR 5.

04 They may be required to pay tax at maximum marginal rate on their net income (i.e., gross receipts – expenses incurred for earning the gross receipts). The expenses incurred on charitable / religious etc. purposes which are in the nature of application of income may not be allowable.

05. In such cases also the liability for tax audit U/s. 44AB will depend upon the fact that whether the institution is engaged in any business activity and has income chargeable under business head or not. Generally, income of such unregistered etc. institutions (income related to charitable etc. activities) are considered under the head income from other sources.

CONCLUSION – Thus, the institutions should try to comply with all the above legal compliances for getting their income correctly taxed.

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DISCLAIMER : The information contained in the above article are solely for informational purpose after exercising due care. However, it does not constitute professional advice or a formal recommendation. The author do not owns any responsibility for any loss or damage caused to any person, directly or indirectly, for any action taken on the basis of the above article. Before taking any action relevant to the above topic, it is advised that the user may please refer relevant Act, Rules etc.