NGO, Trust, School, College – Important Income Tax Provisions for AY 22-23

CORPUS FUND/ SPECIFIC DONATION –SEPARATE BANK ACCOUNT REQUIRED TO DEPOSIT -Section 11(1)(d)

♦ W.e.f. AY 22-23 – the corpus donation or donation received for specific purpose like donation for construction of School Building, Hospital Building, Play Ground, or for Scholarship and so on for any other purpose, will be exempt only if it is deposited in any of the modes specified in section 11(5) or say in separate bank account specifically maintained for this purpose. [Finance Act 2021]

♦ Now any amount applied from the Corpus shall not be considered as application of income for charitable or religious purposes, as such it will not be considered for purpose of calculating 85% u/s 11(1)(a)/ 11(1)(b).

♦ The amount not so considered as application shall be deemed as application for charitable or religious purpose in the year in which the amount is deposited back into any of the mode specified in section 11(5), to the extent of such deposit or investment.

[w.e.f. 01.04.22 AY 22-23]

APPLICATION OF INCOME OUT OF BORROWED FUNDS – [Explanation 4 to S.11(1)]

• The amount spent out the loan or borrowing shall not be treated as application of income for charitable or religious purpose.
• However the amount not so treated as application of income shall be treated as application of income for charitable or religious purpose in the year in which the loan or borrowing is repaid out of the income of that year and to the extent of such repayment.

[w.e.f. 01.04.22 AY 22-23]

SET OFF OF DEFICIT NOT ALLOWED – EXPLANATION-5

• The deficit of earlier year shall not be considered as application of income in subsequent years. Exp-5 to Section 11(1).

[w.e.f. 01.04.22 AY 22-23]

CASH TRANSACTIONS

• Cash payment in excess of Rs. 10000/- not allowed u/s 40A(3)/ (3A) – if any expenditure is incurred in cash in violation of section 40A(3), the amount shall not be considered as application of income. [Exp-3 Sec(11)(1), inserted by FA 2018 w.e.f. 01.04.19]
• If any institution accepts, takes or makes repayment of any loan in violation of section 269SS and 269T, it shall attract penalty equal to the cash transaction.
• If any institution receives cash payment of Rs. 2 lakh or more at a time from a person in a day, in violation of section 269ST, either in respect of donation or on account of sale of property or on account of any other event, it shall attract penalty equal to the cash amount involved.

TDS PROVISIONS

• Every institution or NGO is liable to follow TDS provisions and is required to make deduction of tax at source from the payment made to any person, in respect of Salary, Rent, Contractor, Transportation, Advertisement, Professional Fees, etc. , if the payment exceeds a certain amount specified in the relevant TDS Provision.
• If TDS is not deducted under relevant provisions of the Income tax Act then the provisions of section 40(a)(ia) will apply and 30% of the amount payable will be disallowed or added in income of the trust. [Exp-3, Sec(11)(1) inserted by FA 2018 w.e.f. 01.04.19]

DEPREICATION

• Depreciation – Depreciation will not be considered for the purpose of determination of application of income (85%) in respect of any asset, acquisition of which has been claimed as an application of income either in the same or in any previous year. In other words if the cost of asset has not been claimed as application of income only then depreciation can be claimed as application of income. [Section 11(6) – Finance (No.2) Act 2014 w.e.f. 01.04.15]

DONATON TO ANOTHER TRUST

• Contribution to any Fund or Trust, with specific direction to form part of corpus, out of the income accumulated to the extent of 15% u/s 11(1)(a)/(b) will not be considered as application of income. [Exp-2, Sec(11)(1) inserted by FA 2017 w.e.f. 01.04.18]

ANONYMOUS DONATION TAXABLE

• [Section 13(7) w.e.f. 01.04.07 read with Section 115BBC] – Anonymous donations will be taxable @ 30%. Anonymous donations means the trust does not maintain record of identity and address of donor.

DELAY IN FILING OF RETURN WILL ATTACT TAX LIABILITY

• No benefit u/s 11 if return not filed u/s 13(1) – [Section 12A(1)(ba) – inserted by FA 2017 w.e.f. 01.04.18]

RE-REGISTRATION OF NGO/TRUST

• Re-registration of all the trust u/s 12AB – All the charitable trust/NGO/Society are required to obtain re-registration u/s 12AB. [Finance Act 2020 w.e.f. 01.06.20]
• Re-registration u/s 80G of Income Tax Act – All the charitable Trust/ NGO are required to obtain re-registration u/s 80G of the Income Tax w.e.f. from AY 22-23.

SECTION 10(23C) vs SECTION 11 – ONLY ONE WILL PREVAIL –

• As per existing sub-section (7) of section 11, if the registration u/s 12A/12AA or 12AB is in force for any previous year, then the exemption u/s 10 other than clause 1, clause (23C) and clause 46 was not be available.
  • In other words the trust or institution was allowed to claim exemption under clause 1, clause (23C) or clause 46 of section 10 in spite of being registered under section 12A/12AA or 12AB.
  • Exemption under any other clauses of section 10 other than as mentioned above was not allowed.
• Now the trust of institution shall be eligible to claim benefit either under section 10 (23C) or Section 11. Approval and registration both will not run together. [Proviso to Sec-11(7)- FA 2020 w.e.f. 01.06.20]
  • If any trust or institution holds both approval u/s 10(23C) and registration u/s 12AA/12AB as well, the registration u/s 12AA/12AB shall be inoperative from the date on which institution is approved or w.e.f. 01.06.20 whichever is later.[Proviso to Section 11(7) – Finance Act 2020].
  • Provided that if the registration u/s 12AA/12AB has become inoperative as above the institution may get the registration operative u/s 12AB
  • After obtaining the registration operative u/s 12AB the approval u/s 10(23C) shall become ineffective.

DEDUCTION U/S 80G

• If any donor gives donation to any Trust or NGO in cash in excess of Rs.2000/-, he will not be entitled to obtain deduction u/s 80G(5D). [w.e.f. 01.04.18 FA 2017].
• Secondly the deduction to the donor will be allowed on the basis of annual statement donation filed by the Trust or NGO electronically in Form 10BD before 31^st may next following the financial year in which the donation is received and furnishes a Certificate to the donor in Form 10BE. [Caluse (viii) to section 80G(5) w.e.f. 01.04.21]

Chapter XVII-EB – Section 115TD -115TE – 115TF – Tax on accreted income of Trust

• • If a trust of institution registered u/s 12AA or 12AB –
    • Whose registration is cancelled; or
    • Merged with another trust not registered u/s 12AA or 12AB; or
    • Fails to transfer upon its dissolution all its assets to any other trust or institution registered u/s 12AA or 12AB or to certain institutions referred in some of the clause of section 10(23C), as referred in proviso to Section 115TD(2).
    • The accreted income of the trust on the specified date shall be chargeable to tax at the maximum marginal rate of tax in addition to the tax on income of the trust.
    • e.f. 01.06.2016 FA 2016]

CSR FUNDS

• If any Trust or NGO desires to conduct any CSR Activities and wants to receive CSR Funds from a Company it needs to get itself registered on MCA Portal and the registration on MCA Portal will be done only if it is registered u/s 12A/12AA or 12AB and u/s 80G of the Income Tax Act.

(Ministry of Corporate Affairs) ………………….. 12A/12AA/12AB …………. 80G