Income Tax Benefits for Charitable Trusts and NGOs

• Comprehensive overview of the taxation of trust in India.
• Detailed explanation of NGO donation tax exemption as per taxation of trust.
• In-depth analysis of income tax benefits for charitable trusts under taxation of trust.
• Specific conditions and documentation required for NGO tax exemption

Non-government organisations (NGOs) serve society's needs and promote cultural values. But are they free from taxation? It is important to be aware of the taxation of the trusts/NGOs. This article explores the taxation of trust and donations to NGOs in India.Read on to learn about the taxation of trust in India, NGO donation tax exemption, and develop an understanding of charitable trust income tax.

Under section 12A, NGOs are exempt from income tax. However, there are some governmental red tape and nuances that NGOs have to navigate while operating in India.Charitable institutions with the 80G certification tend to attract more donors since they offer tax benefits. However, NGOs without registration are taxed at regular rates and they are not exempt from taxation of trust.

The taxation of trust in India is governed by specific provisions in the Income Tax Act. Let's explore the key aspects of trust taxation:

For an NGO to be exempt from taxes received as donations, it has to be registered under Section 12A of the Income Tax Act, 1961.The procedure involves the following steps:

• Step 1 Application to a commissioner or principal commissioner
• Step 2 Submission of documents proving authenticity and objectives
• Step 3 Examination of the application by the commissioner
• Step 4 Acceptance or rejection of the application

The income of an NGO with a 12A certificate is free from taxation of trust.

The 80G certification empowers donors to claim tax benefits on their donations. An NGO applying for an 80G certificate should:

• File form 10G with a report on the activities of the last three years
• Obtain a 12A certificate
• Attach an audit report for the last three years comprehensively

Also Read: What Is Gift Tax in India?

When it comes to taxation of trust, the institutions certified under both 80G and 12A hold a huge advantage with regard to attracting donors. However, both these certifications require a host of documents that need to be submitted to concerned authorities before approval, which are listed below.

For 80G Registration:

• PAN card of NGO
• List of donors with PAN and address
• MoA and Registration Certificate (in case of Societies & Section 8 Companies) or Trust Deed (in case of Trusts)
• Certificate of Incorporation
• NOC from property owner, in case the office is on rented property
• IT Returns and Book of Accounts for the last 3 years
• Form 10G
• Welfare activities list
• Copy of latest utility bills or House Tax Receipt
• List of Board of Trustees

For 12A Registration:

• Form 10A
• PAN card of the organisation
• Trust Deed or Registration Certificate & MoA
• Financial statements for three consecutive years
• Certificate of Incorporation and MoA & AoA, in case of Section 8 Companies

NGOs, trusts, and every public non-profit institution needs to file its income tax using the ITR 7 form regardless of exemption from taxation of trust or not. The major points to be noted are as follows:

• Online filing is compulsory
• Digital signature or digital code is needed
• Return to be furnished under digital signature by NGOs whose audit is covered under section 44AB
• The due date is 31st October if claiming exemption under sections 11 and 12
• The due date is 31st July if not claiming an exemption

The accounts of charitable trusts are required to be audited if their income, before claiming exemption under sections 11 to 12, exceeds ₹2,50,000 in any previous year.

There are several advantages that the system of taxation of trust in India presents to charitable organizations and donors. By correctly understanding the intricate provisions of trust taxation, NGO donation tax exemption, and charitable trust income tax provisions, a trust can indulge in maximum work while following the law. Although legislation is dynamic, trusts and donors must keep updating their knowledge regarding the latest developments on the taxation of trust in India.