TAXATION OF NOT FOR PROFIT ORGANIZATION V1.pptx

Society(Society Registration Act, 1860)
Section 8 Company ( Section 8 of New Company Act 2013 )
Special Licenses ( State Trading corporation)
Public Charitable Trust.
Private Trust.
- Specific Trust
- Discretionary Trust
Religious Trust
Employee Benefit Trust
CSR trust
Political Parties/Electoral Trust
Registration u/s 12A, 12AA, 12AB
Notified under 10(23C) I,II,III
Approval under 10(23C) iv,v,vi.va
Educational/Medical institute turnover less then Rs.5.00 Cr. Without having any registration/ Approval
Research Institutions

1. INCOME TAX Taxation of Not for profit organizations CA RAVI GODYAL 1

2. Types of Not-for-profit organizations As per Incorporation Nature Society(Society Registration Act, 1860) Section 8 Company ( Section 8 of New Company Act 2013 ) Special Licenses ( State Trading corporation) Public Charitable Trust. Private Trust. - Specific Trust - Discretionary Trust Religious Trust Employee Benefit Trust CSR trust Political Parties/Electoral Trust As per Registration under Income Tax Registration u/s 12A, 12AA, 12AB Notified under 10(23C) I,II,III Approval under 10(23C) iv,v,vi.va Educational/Medical institute turnover less then Rs.5.00 Cr. Without having any registration/ Approval Research Institutions CA RAVI GODYAL 2

3. BASIC CONDITIONS PREREQUISITES OF NPO STATUS OF NPO In case of Public Charitable Trust Status to be AOP (Trust) { if registered u/s 12AA}. In case of society 1860 Status to be AOP (Trust) { if registered u/s 12AA}. In case of Unregistered (u/s 12AA) Trust/Society the status as per Income Tax Return to be AOP. In case of sec 8 company the status to be AOP( Trust) CA RAVI GODYAL 3

4. Books of account and other documents Every fund or institution or trust or any university or other educational institution or any hospital or other medical institution which is required to keep and maintain books of account and other documents under clause (a) of tenth proviso to clause (23C) of section 10 of the Act or sub-clause (i) of clause (b) of sub-section (1) of section 12A of the Act shall keep and maintain the following, namely:- (i) cash book; (ii) ledger; (iii) journal; (iv) copies of bills, whether machine numbered or otherwise serially numbered, wherever such bills are issued by the assessee, and copies or counterfoils of machine numbered, or otherwise serially numbered receipts issued by the assessee; (v) original bills wherever issued to the person and receipts in respect of payments made by the person; (vi) any other book that may be required to be maintained in order to give a true and fair view of the state of the affairs of the person and explain the transactions effected; CA RAVI GODYAL 4

5. Books of account and other documents Record of the following, out of the income of the person during the previous year, namely: (I) application of income, in India, containing details of amount of application, name and address of the person to whom any credit or payment is made and the object for which such application is made (II) amount credited or paid to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution containing details of their name, address, permanent account number and the object for which such credit or payment is made; (III) application of income outside India containing details of amount of application, name and address of the person to whom any credit or payment is made and the object for which such application is made (IV) deemed application of income referred in clause (2) of Explanation 1 of sub-section (1) of section 11 of the Act containing details of the reason for availing such deemed application (V) income accumulated or set apart as per the provisions of the Explanation 3 to the third proviso to clause (23C) of section 10 or sub-section (2) of section 11 of the Act which has not been applied or deemed to be applied containing details of the purpose for which such income has been accumulated. money invested or deposited in the forms and modes specified in sub-section (5) of section 11 of the Act; (VII) money invested or deposited in the forms and modes other than those specified in sub­section (5) of section 11 of the Act; Record of voluntary contribution made with a specific direction that they shall form part of the corpus, Record of contribution received for the purpose of renovation or repair of temple, mosque, gurdwara, church or other place notified under clause (b) of sub-section (2) of section 80G which is being treated as corpus as referred in Explanation 1A to the third proviso to clause (23C) of section 10 or Explanation 3A to sub-section (1) of section 11 Record of loans and borrowings,- Record of properties held by the assessee, Record of specified persons CA RAVI GODYAL 5

6. CORPUS DONATIONS & ANONYMOUS DONATIONS CORPUS DONATIONS Voluntary contributions received by the trust or institution with a specific direction that they shall form part of the corpus of the trust or institution are not required to be applied, subject to the condition that such voluntary contributions are invested or deposited in one or more of the forms or modes specified in-section 11(5) for such corpus. a) There is a specific direction from the donor that the voluntary contribution shall form part of the corpus. b) The donations are invested or deposited in one or more of the forms or modes specified in sub-section (5) of section 11. ANONYMOUS DONATIONS If the trust or institution (other than a religious institution) is receiving donations and does not maintain a record of the identity indicating the name and address of the person making such donation, such donation will be treated as anonymous donation which is taxable as per the provision of section 115BBC of the Act. As per the provisions of section 115BBC, anonymous donations received in excess of the higher of the following, are taxable:— a. Five percent of the total donations received by the trust or institution; or b. one lakh rupees CA RAVI GODYAL 6

7. TAXABLE INCOME OF NPO TAXATION ON NPO For claiming exemption u/s 11, 10 (23 C)(iv)(v)(vi)(via) Minimum 85 of income is to be applied towards purpose in India .(Either Revenue or Capex) i e income up to 15% can be Freely accumulated or set apart for application for such purpose in India- Extra - Accumulation File Form No 10 Income due but not received in the previous year file form no 9A [not in 10 (23 C)] -Accumulated funds are invested as per 11( 5 )various modes are provided 5 years MEANING OF APPLICATION OF FUND Revenue Expenditure Purchase of Fixed Assets - Any Loan taken against Fixed Assets Repayment of Loan Payment of any Taxes Voluntary donation to other trust CA RAVI GODYAL 7

8. The income of the trust or institution is to be computed on a net basis as follows a) Revenue expenses are allowed b) Expenses should be in India c) Expenses should be for the objects of the trust or institution d) Expenditure should not be from corpus as of 31st March of the previous year e) Expenditure should not be from loans and borrowings f ) Depreciation on assets not allowed if the cost of asset claimed as application g) Expenditure should not be donations to other persons h) Section 40A(3)/(3A)/40(a)( ia ) shall apply i) no deduction in respect set-off of any loss shall be allowed CA RAVI GODYAL 8

9. Application on actual payment basis Any sum payable , shall be considered as application of income in the previous year in which such sum actually paid by it . Irrespective of method of accounting Where sum has been claimed as application in earlier year shall not be applied as application on payment basis in subsequent year. Depreciation : From Schedule ER removed Depreciation and amortization cost as per changes brought vide Finance Act, 2022 by inserting an Explanation to section 11 and Explanation 3 to clause (23C) of section 10 providing that any sum payable by any fund or institution or trust etc. shall be considered as application of income during the previous year in which such sum is actually paid. CA RAVI GODYAL 9

10. Expenditure not allowed as application In Schedule ER, new field inserted in table C to capture information of disallowable expenditure such as Donation to trust or institution registered or approved under income tax towards Corpus Donation to trust or institution registered or approved under income tax other than towards corpus in case of donations out of accumulated income u/s 11(2) Donation to trust or institution registered or approved under income tax not having same objects Application outside India for which approval as per proviso to section 11(1)(c) is not obtained Applied for any purpose beyond the objects of the trust or institution Amount which was not actually paid during the previous year ( as per changes brought vide Finance Act, 2022 by inserting an Explanation to section 11 and Explanation 3 to clause (23C) of section 10 ) CA RAVI GODYAL 10

11. INCOME TAX LIMIT AND FORM Income taxable Limit Income to be recognized without any head of Income. After the Application of Fund if any Surplus is available then NO Basic Exemption rest to be charged @30% (Trust and Society). But in case of company no Basic exemption is available. Income Tax Return form The ITR – 7 must be filled online along with audit report in form no 10B/10BB.( in case of registered u/s 12AA). ITR – 5 in case of unregistered trust/Society. Due Date if registered u/s 12AA/1023C 30 th September otherwise 31 st July. CA RAVI GODYAL 11

12. Section wise organization under NPO CA RAVI GODYAL 12

13. SECTION-WISE AUDIT UNDER NPO. Compulsory Audit:- Audit u/s 12A(1)(b) trust /institution turnover exceed 2.5 lac before claim sec 11 and 12 CA RAVI GODYAL 13

14. AUDIT REPORT FORM FORM 10B Total income without giving effect section 11&12 exceed Rs.5Cr. Total income of the institutions of 10(23C) (iv), (v), (vi), (via) exceed Rs.5Cr. Received any amount of FCRA during previous year. Applied any part of income outside India during the previous year. FORM 10BB Total income without giving effect section 11&12 less than Rs.5Cr. Total income of the institutions of 10(23C) (iv), (v), (vi), (via) less than Rs.5Cr. CA RAVI GODYAL 14

15. Form under income tax for NPO ITR-7 (For filing of Income tax Return) ITR-5 (For filing of Income tax Return) 10 A (For getting Income tax Registration) 10AB (For renewal Registration) 10 (For Accumulation of Fund) 9A ( For Deemed application of income) 10BD (For Statement of Donation) 10BE (certificate of Donation) 10AC (Certificate of Registration) 10AD ( Approval / Rejection ) 10B/10BB (Audit report) For NPOs which having registration u/s 12 AA and approval u/s 10 (23C) the due date for filing Income tax return is 31 October CA RAVI GODYAL 15

16. ITR 7 Section 139 ( 4A ) :- Trust /Institution claiming exemption u/s 11 Section 139 ( 4B ):- for political parties/ Electoral trust Section 139 ( 4C ):- - News agency :-10(22B) - Association or institution referred to in :-10(23A) - Institution referred to in :-10(23B) -Fund or institution or university or other educational institution or any hospital or other medical institution ;10(23C) - Mutual Fund :-10(23B) - Venture Capital Fund :-10(23FB) - Trade Unions :-10 (24a and 24b) - Trust / Board :-10 (46) - Infrastructure debt fund :-10(47) Section 139 ( 4D ):- - Every university - College, other institution - Refer in section 35(1) CA RAVI GODYAL 16

17. Different Tax Rates for NPO 1.Section 115BBI Applicable in case of taxation of Specified Income mentioned in the explanation of section 115BBI at a rate of 30%. The Finance Act, 2022 inserted a new Section 115BBI, to provide a special rate of tax for the specified incomes of trust, which is applicable from Assessment year 2023-24 a) income accumulated or set apart in excess of fifteen per cent of the income b) Violations section 11(3) , Amount not spend with in five year after filing form no 10 Violation section 11(1B) Amount not spend with in time after filing form no 9A c) Income invested in modes other than 11(5) d) Benefits to specified persons section 13(1)(.c.)] e) Application outside India without Board approval [section 11(1)(.c.)] 2.When benefits of Sections 11 and 12 are withdrawn for a specified reason, the income will be subject to tax as per section 13(10), read with section 164(2). 3.As of Normal Assessee: - When the registration is not renewed, or the assessee has not applied for the renewal of the registration tax will be applicable as per Normal Assessee. 4.Section 115BBC: Tax will be applicable @ 30% without any set-off or deduction under any other head on the anonymous donation received by trust. CA RAVI GODYAL 17

18. Some of the instances of default 1.Income applied outside India [ section 11(1)(c)]. 2 where an organization fails to apply income after considering it deemed application by filing Form 9A.(under section 11(1B) 3 where an organization fails to apply income after accumulating it by filing Form 10. (section 11(3) 4.Value of any Medical or Educational Services provided to Interested Persons [Section 12(2)] 5.Violation of conditions specified under section 12A(1) (a)Non-filing of Income-tax Return (b)Non-obtaining & furnishing of Audit Report (c)Non-maintenance of books of account as prescribed under Rule 17AA (w.e.f. Assessment Year 2023-24) (d)Non-applying for renewal of Registration or for making the provisional Registration into a normal registration. 6.Not applying for Re-registration for confirming the modification of the object Clause. 7.Violation of section 13(1) (a)Income applied for the private religious purpose [Section 13(1)(a)] (b)Income applied for particular religious community or caste [Section 13(1)(b)] (c)Benefit to interested person [Section 13(1)(c)] (d)Investment of funds in an unspecified manner [Section 13(1)(d)]. 8.Incidental business activity in excess of 20% of gross receipt [Section 13(8)] 9.Anonymous donations in excess of the exemption limit [Section 13(7)] CA RAVI GODYAL 18

19. Different situation in which the benefit will cease under section 11(1B) and 11(3) CA RAVI GODYAL 19

20. Registration to be cancelled Registration to continue and taxing net income under section 13(10) (a) if the trust or institution does not maintain books of accounts as prescribed by rule 17AA (b) Return of income has not been furnished within time (c) Audit report not submitted within time (d) Commercial activities are carried out by the trust or institution and proviso to clause (15)of section 2 of the Act is applicable. The most severe violations, the registration of the NPO is cancelled. a) Application beyond objects b) Non maintenance of books of incidental business c) Application for private religious purpose d) Benefits to religious community or caste e) Ingenuine activity/violation of conditions for registration f ) Violation of other laws g) Incomplete, false, or incorrect application in registration CA RAVI GODYAL 20

21. You must give some time to your fellow man. Even if it’s a little thing, do something for those who have of help, something for which you get no pay but the privilege of doing it. For remember, you don’t live in a world all your own. Your brothers are here, too. CA RAVI GODYAL CHARTERED ACCOUNTANT 📱: [phone] CA RAVI GODYAL 21