Types of NGOs:
- Societies, Trusts, and
Section 8 Companies: Each might have different tax implications
but generally fall under the same tax framework when it comes to
exemptions.
Tax Exemptions:
- Section 12A: Registration under Section
12A is crucial for NGOs to claim an exemption on income. This registration
allows NGOs to claim that their income is not to be included in their
total income for tax purposes, subject to certain conditions:
- Application of Income: The income should be
applied for charitable or religious purposes in India. If there's income
which is not applied in the year it is received, it can be accumulated or
set apart for specific purposes, but with conditions (like informing the
tax authorities within the due date of filing the return).
- 85% Rule: At least 85% of the income
must be applied for the objects of the trust or institution during the
year. If not, the unspent amount must be accumulated with restrictions.
- Section 10(23C): This section provides
exemptions to certain funds, educational institutions, hospitals, etc.,
provided they meet specific conditions regarding their activities and
income application.
- Section 11: Direct tax exemption for
income from property held under trust wholly for charitable or religious
purposes to the extent it is applied for such purposes in India.
Tax Deduction at Source (TDS):
- NGOs receiving income: They might be subject to
TDS on income like interest, rent, etc., under various sections of the
Income Tax Act. However, they can apply for a lower or no TDS certificate
if they meet the exemption criteria.
- NGOs paying out: They are required to deduct
TDS on payments like salaries, professional fees, etc., just like any
other employer or payer.
Compliance:
- Filing Returns: NGOs must file income tax
returns annually, even if they are exempt from tax, using the appropriate
ITR form (usually ITR-7 for charitable trusts).
- Audit: NGOs whose total income
exceeds the threshold specified under Section 44AB must get their accounts
audited by a chartered accountant.
Additional Considerations:
- Donations: Donations to certain NGOs
can qualify for deductions under Section 80G for the donors, but the NGO
itself must be registered under this section, and there are specific
conditions and limits.
- Profits and Gains: Any income from business
activities not incidental to the objectives of the NGO will be taxable
unless it's covered under special provisions related to business held for
charity.
- Accumulation of Funds: If funds are not used in
the year of receipt, they can be accumulated for future use but must be
invested in modes specified under the Act or face taxation.
Recent Changes and Compliance:
- Annual Compliance: NGOs need to file Form 10B
or 10BB for audit reports, depending on their income or receipts, and Form
9A if there's an accumulation of income.
- Transparency and Reporting: There's an increasing
emphasis on transparency, thus NGOs might face scrutiny regarding their
activities, financials, and compliance with tax laws.
Understanding
these basics helps NGOs in maintaining their tax-exempt status and ensuring
compliance with Indian tax laws. It's advisable for NGOs to consult with tax
professionals to navigate these regulations effectively.
