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Applicability of TDS on NGOs’ Payment:

TDS is also applicable to the NGOs. There is no general exemption that Trust, Society or Non Profit Organizations are exempt from deducting and paying TDS. It depends on the Financial Transactions and limits of TDS specified every year in the Financial Act. Thus if NGOs makes payments to specific persons above specific limits, needs to deduct and pay TDS within time line specified.

Look into the example below regarding TDS:

NGO paid salaries = Tax would be applicable on the basis of slab rate.

NGO paid Professional Fees = TDS would be deducted @10% on the amount of above Rs. 30,000.

NGO paid Rents = TDS would be deducted @10% on the amount of above Rs. 2,40,000.

NGO paid to contractors = TDS would be deducted @2% and 1% on the amount paid to companies and others respectively. The Amount limit set for non-deduction of TDS under sec. 194C:

1. Amount of invoice which is to be paid or raised to contractor <= RS. 30,000.

2. Overall amount of invoices raised or payment made other than above(i) is <= Rs. 1,00,000.

Applicability of TDS on NGOs’ Receipts:

NGOs face, Tax Deduction at Source (TDS) on various income earned by them. For instance, Banks deduct TDS on the interest income of the NGOs. In case of large organisation, substantial amount of TDS could be deducted. In such circumstances the NGOs can avail the benefit of non-deduction of tax by the banker or the person responsible for remitting income, by following the specific provisions of the Income Tax Act which have been discussed U/s 197A.

Note: On the receipt of any grant by the trust is not subject to any tax at the time of receiving grant.

Declaration Under Section 197A:

  • All NPOs have to apply to the ITO or non-deduction of tax, any self-declaration is no longer permissible.
  • No deduction of tax is to be made in the case of a payee, if he furnishes a declaration in writing in duplicate in the prescribed form [Form No. 15G] and verified in the prescribed manner, to the payer of such income to the effect that tax on his estimated income of the relevant previous year will be nil.
  • The payer of the income is required to deliver to the Commissioner of Income-tax one copy of the aforesaid declaration on or before the 7th day of month following the month in which the declaration is furnished to him [section 197A]. Where payments are to be made to the same person more than once in a year, the declaration in the relevant form may be furnished before the first payment in a year becomes due.
  • It may also be noted that in the declaration, particulars of only such securities are to be furnished the income from which is payable, by the person to whom declaration is furnished
  • The provisions of section 197A shall not apply where the amount of income on the following items, or the aggregate of such income, exceeds the maximum amount which is not chargeable to tax:

1. Interest on securities

2. Dividends

3.in respect of deposits under National Savings Scheme

4. Income in Interest other than interest on securities

5. Payments respect of units.

Rule 28AB of the Income Tax Act, 1961:

  • As per Rule 28AB provides for obtaining a certificate of no deduction of tax at source in the case of certain entities, provided certain conditions are satisfied.
  • Certain Entity includes:
    • Persons in receipt of income or deemed income derived from property held under trust wholly for charitable purposes and who claim exemption under section 11 or section 12.
    • Persons mentioned below who are required to file a return of income under section 139(4C) & (4D):
  • Scientific research association referred to in section 10(21);
  • News agency referred to in section 10(22B);
  • Association or institution referred to in section 10(23A);
  • Institution referred to in section 10(23B);
  • Fund or trust referred to in section 10(23C)(iiiae);
  • Fund or trust referred to in section 10(23C)(iv);
  • Trust or institution referred to in section 10(23C)(v);
  • University or other educational institution referred to in section 10(23C)(vi);
  • Hospital or other medical institution referred to in section 10(23C)(via);
  • Trade Union or association referred to in section 10(24)(a)(b).
  • Form of Application

The persons mentioned above may make an application in Form No. 13 to the Assessing Officer for the grant of a certificate under section 197(1) authorising them to receive incomes of any type without deduction of tax at source, if the conditions mentioned below are satisfied.

  • Conditions to be SatisfiedThe persons must satisfy the following conditions in order to make the application in Form No. 13:

1. The persons must have furnished the returns of income for all the assessment years for which such returns became due on or before the date on which the application in Form No. 13 is made;

2. the entity if for the time being approved for the purpose of exemption from income-tax;

  • the applicant must give a list of Deductors from whom amounts are to be received without deduction of tax at source every six months along with the names, address and the amounts received.

The Assessing Officer may issue a certificate authorising payment of incomes without deduction of tax at source, the certificate shall be valid for the financial year specified therein.

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5 Comments

  1. Ashutosh says:

    Hi, we are a section 8 company having 12A registration & applied for 80G. One of the funder have dedected TDS @2% on educational grant. Please let me know whether tds is applicable on educational grant or not. If it is applicable then what about GST implecations ?

    1. Vikram Singh Rawat says:

      Hello Ashutosh, let discuss two aspect vis-à-vis:
      1) Implication of TDS on every organization is same irrespective of nature of entity. However, in case of TDS on grant receipts, nowhere specified in I.T. Act. In my opinion tds should not be deducted on receipt of grant or donation.
      2) GST is not mandatory aspect for any NGO who have availed 12A and 80G Registration. However Ngo should get GST registration in following two cases:
      a) it is requirement of Donor or
      b) NGO indulge in an activity which directly or indirectly attribute more than 20% of total receipt of NGO and which is classified as commercial activity.

      Crux of above details:
      1) GST registration is a discretion of NGO. It will not impact you exemption eligibility.
      2) TDS is not applicable on grant or donation but let first understand in which section your donor deducting tds and why ?

  2. G Agrawal says:

    Can you please clarify:
    A corporate company gives a project to implement for their CSR to an NGO, and deduct TDS on that amount.
    But as the NGO already registered under 80G, 12AA, is Tax Exempt and is recognized by the tax authorities as an organization established for ‘charitable purpose’.
    Then why and under which section or rule of Income Tax Law, the deduction of TDS is valid?

    1. Vikram Singh Rawat says:

      Greetings.
      In my opinion, Donation receipt is not subject to TDS deduction. However, other nature of receipt shall fall under the gambit of TDS provision.

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