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- Key Highlights
- Do NGOs Pay Tax through taxation of trust?
- Understanding Taxation of Trust in India
- 12A Registration for NGO tax exemption
- 80G Certification for donation to NGO tax exemption
- Documents Required for Registration
- Filing income tax returns under taxation of trust
- Audit Requirements
- Taxation of trust in India
- FAQS - FREQUENTLY ASKED QUESTIONS
Key Highlights
- 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.
Do NGOs Pay Tax through taxation of trust?
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.
Understanding Taxation of Trust in India
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:
| Aspect | Details |
| Definition of Charitable Purpose |
|
| Income Categories |
|
| Application of Income for Exemption | `At least 85% of income must be applied towards charitable purposes in India |
| Registration Requirements |
|
| Compliance Obligations |
|
12A Registration for NGO tax exemption
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.
80G Certification for donation to NGO tax exemption
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?
Documents Required for Registration
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
Filing income tax returns under taxation of trust
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
Audit Requirements
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.
Taxation of trust in India
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.
FAQS - FREQUENTLY ASKED QUESTIONS
What is the main benefit of taxation of trust in India for charitable organizations?
The taxation of trust in India for charitable organizations is the exemption from tax on the income applied towards charitable purposes. Hence, there is no taxation of trust for charitable organisations.
How does NGO donation tax exemption work for donors?
Donors can claim donation to NGO tax exemption under Section 80G for donations to approved NGOs and trusts. Donations to NGOs with tax exemption in India are common.
What percentage of income must a charitable trust apply towards its stated purposes?
As per taxation of trust guidelines, at least 85% of the trust's income must be applied towards charitable purposes in India or else the NGO would be eligible to be taxed. Taxation of trust in this particular case would be applicable.
Are all donations to NGOs eligible for tax exemption in India?
Only donations to NGOs registered under Section 12A and with 80G certification are eligible for donation to NGO tax exemption. Other donations are eligible to be taxed and NGO tax exemption laws won't be applicable.
How long is the registration for charitable trusts valid under current tax laws?
Registration under Section 12A is valid until cancelled or withdrawn.
Can foreign donations to Indian NGOs qualify for tax exemption?
Foreign donations are subject to different regulations under FCRA and may not qualify for the same tax benefits as domestic donations.
What are the consequences if an NGO fails to file its income tax return
Failure to file returns can result in penalties, loss of tax-exempt status, and potential legal consequences. If an NGO loses its tax-exempt status, taxation of trust would begin.
Is there a limit to the amount of tax-deductible donations an individual can make?
While there's no overall limit, certain donations have specific limits on the deductible amount.
How often do NGOs need to renew their 80G certification?
As of recent changes, 80G certifications are valid for 5 years and need to be renewed thereafter.
Can an NGO engage in profit-making activities without losing its tax-exempt status?
NGOs can engage in limited profit-making activities, but the income must be aligned with their main charitable purpose and used for the same.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.
