• Public Charitable Trust • Society(Society Registration Act, 1860)• Section 8 Company ( Section 8 of New

Company Act 2013 )• Special Licenses ( State Trading corporation)

Types of NPO

Prerequisites of NPO

• Charitable Activities as defined u/s 2(15) of Income Tax Act

• Profit cannot be distributed among the Owners

• Beneficiaries to be Public at large without discrimination among caste, religion, gender etc.

Sections in Income tax act for NPO

• Section 11• Section 12• Section 13

Conditions for Claiming Section 11• Formation of Organization– Society – Charitable Trust– Section 8 company– Other special org.

• Objectives as per section 2(15) of income tax act• Creation for any lawful purpose• Registration u/s 12 AA before of CIT

( Exemption) or 10 (23).• Any business activity cover under 11(4).

Benefit of Section 11

The application of Fund is 85% or more than 85% then rest of the surplus will be exempt from the tax.

85% means revenue and capital nature both.If 85% not made within a year than form no 10

filed before the due date of filling of income tax return to the Assessing officer, then extension of 5 years will be allowed for expenditure.

Section 12 AA

• Benefit of Section 11• Corpus Donation is Exempt u/s 11(1)(d).• Benefit of Business Activity u/s 11(4A).• Benefit of Capital Gain u/s 11(1A).

Activities covered u/s 2(15)

– Relief of the poor– Education– Medical relief– Preservation of Environment(Including Watershed,

forests and wildlife)– Preservation of monuments or places– Preservation of artistic or historic interest– Any other object of general public utility – Yoga

Other example of section 2 (15)• Gaushala and helping animals• Dharmashala• Research Institute• Export promotion Associations• Maintenance of Samadhis & Memorials• Promotion of Khadi• Promotion of Art, literature and science• Maintenance of Libraries and Reading rooms• Promotion of Sports & Games• Meditation, Yoga and Spirituals developments

Meaning of Advancement of Any other Object of General public Utility

• Any activity in nature of trade, commerce or business.

• Any activity of rendering any service in relation to any trade, commerce or business.

Charge a fee or cess or any other consideration.The aggregate receipts of such activities during

the Previous year does not exceed 20% of Total Receipts.

Status of NPO

• In case of Public Charitable Trust Status to be AOP (Trust)

• In case of Society status to be AOP (Trust)/AJP• In case of Section 8 company the status to be

Company

Basic Exemption Limit

• Income to be recognised without any head of Income.

• After the Application of Fund if any Surplus is available then

• We can avail the benefit of Basic Exemption limit Rs. 250000 /- (Trust and Society).

• Benefit of slab available• But in case of company no Basic exemption is

available.

Registration of NPO under Income Tax Act

• For claiming exemption u/s 11, the NPO to be registered u/s 12AA or 10(23C) before the Commissioner of Income Tax Act (Exemptions) within prescribed time.

Application of Fund

• As per the section 11(1), atleast 85% of income should be applied during the Previous year for the purpose of Trust/ Institutions.

• If 85% amount is not applied due to following reasons:

(a) Income due but not received in the previous year. (b) Any other reason. As per clause 2 of Section 11(1), the income to be

deemed applied.

Meaning of Application of Fund

1. Revenue Expenditure2. Purchase of Fixed Assets - Any Loan taken

against Fixed Assets3. Repayment of Loan4. Payment of any Taxes5. Donation by one entity to other (within

current year Surplus)

Meaning of Corpus DonationAccording to section 11(1)(d) any voluntary

contribution received by a trust created wholly for charitable or religious purpose with a specific direction that they shall form part of the corpus of the trust, shall not be included in the total income u/s 11.

To claim a donation as a corpus donation, a written document with a specific direction from the donor should be obtain. The recipient organization has no right to treat a donation as a corpus donation.

A corpus donation is not required to be spent in a same year it can be accumulated and form no. 10 is not required to be submitted in the Income Tax department.

As per circular no 108 dated 20.03.1973 by CBDT it cover u/s 12(1) which indicated that such corpus donation is not the part of income u/s 2(24).

The corpus donation to be kept in 11(5).Limit of 85% is not applicable in Corpus Donation.

Anonymous Donation• In order to tax unaccounted money being contributed to charitable

institutions by way of anonymous donations, a new section 115BBC has been inserted so as to provide that any income by way of anonymous donation of the following entities shall be included in the total income and taxed at the rate of 30%.– Any trust or institution referred to in section 11 (other than religious trust).– Any university or other educational institution referred to in section 10

23(c)(iiiad) and (vi) i.e its annual receipts is less than or more than Rs 1 Crore.

– Any hospital or other institution referred to in section 10 (23C) (iiiae) and ( via) i.e. its annual receipts is less than or more than Rs 1 Crore.

– Any fund or institution referred to in section 10(23C)(iv).– Any trust or institution referred to in section 10 (23C)(v).

Tax on anonymous donation

• Aggregate of anonymous donation received in excess of higher of the following shall be taxable @30% :– 5% of the total donation received by the assessee. Or– Rs 100000/-– The balance total income reduced by the aggregate of

anonymous donation received shall be taxable per the other provisions of the Act.

– In other words anonymous donations received to the extent of higher of the above two amounts shall not be taxable at the special rate of 30% under section 115 BBC.

NPO Engaged in Business Activities

• As per Section 11(4A), if Such business is incidental to attainment of

the objectives of the trust. Separate books of accounts are maintained. Surplus to be applied for the objective of the

trust.

Depreciation

• No depreciation is allowed on the Fixed Assets where at the time of Purchase, claimed as application of fund.

Maximum Marginal Rate

• Any direct or indirect benefits transfer to the related person refer section 13(3).( excess of Market Rate.)

• Any part of the income applied to related person refer section 13(3). ( excess of Market Rate.)

• Income received from the investment which are not as per section 11(5).

• Anonymous donation as per section 115 BBC.

Following will be considered as Benefit to a person section 13(3)

• Interest free loan or loan without security• Use of properties without charging adequate rent.• Excessive payment for services.• Services of trust without adequate remuneration.• Purchase of property for trust for excessive

consideration.• Sale of trust property for inadequate consideration.• Diversion of income or property exceeding Rs 1000.• Investment in substantial interest concerns.

Income tax Returns and peanlty

• Due Date if we claim benefit of section 11 and 12 (ie registered trust u/s 12AA and 10 (23) )then it will be 30th September otherwise 31st July.

• Otherwise penalty of Rs 200/-day from the due date on Registered trust.

Example of clause 2 of Section 11(1)

Total Income earned in Previous year 2015-16 Rs. 1,00,000Actual Receipts Rs. 75,000Balance Received in Previous year 2016-17 Rs. 25,000Permissible accumulation 15% of Rs. 1,00,000 in P/Y 2015-16 Rs. 15,000Deemed application under clause 2 of Section 11(1) Rs. 25,000

Amount of Rs. 25,000 is the deemed income in the P/Y 2016-17. And has to be applied for objects of the trust in the same year.

Example of Anonymous Donation• Case I: Total Donation Rs. 25,00,000Anonymous Donation Rs. 4,00,000Exempt (1,00,000 or 5% of Rs. 1,25,000Total whichever is higher) Taxable @ 30% (4,00,000- 1,25,000) Rs. 2,75,000 General Donation (25,00,000- 2,75,000) Rs.

22,25,000 Treat Rs. 22,25,000 as a voluntary donation available for

application of fund.

Capital Gain u/s 11(1A)

• Where whole of the net consideration from transfer of capital asset is utilised for acquiring new asset, the entire capital gain would be deemed application of fund and Capital gain will be nil.

• If part of the net consideration is utilised for acquiring a new asset then amount of capital gain shall be equal to the Consideration received less cost of new asset purchased.

Example of Capital Gain Situation I Situation

IIi. Net consideration 1,00,000 1,00,000ii. Cost of the asset 40,000 40,000iii. Capital Gain (i- ii) 60,000 60,000iv. Investment in new asset 80,000 1,00,000v. Shortfall in re-investment(i- iv) 20,000 0vi. Deemed applied of gain(iii- v) 40,000

60,000vii. Net Capital Gain taxable(iii- vi) 20,000 0

• Purchase of new Fixed Assets 8,50,000/-Find the Taxability of above for the Assessment year

Expenditure Amt income Amt

Mis Expenses Revenue Nature

9,10,000 Donation ( Voluntary)

5,00,000

Depreciation 1,20,000 Rental income 6,00,000

Net Surplus 4,25,000 Unanimous Donation

3,00,000

Accrued interest on Fixed Deposits

55,000

Total 14,55,000 Total 14,55,000

Computation of income • Voluntary Contribution 5,00,000• Rental income 6,00,000• Accrued interest on Fdr 55,000• unanimous donation 3,00,000• Corpus Donation 10,00,000 24,55,000

• Less• Application of fund u/s 11(1)(a) 10,30,000• Corpus Donation u/s 11(1)(d) 10,00,000• Deemed application u/s 11(1) Cl 2 55,000 20,85,000

• Total income 3,70,000Calculation of Tax

• Calculation of Anonymous Donation Total donation ( 500000+300000+100000) 18,00,000/- , exempt donation is 1 lakh or 5% of donation whichever higher i.e 90,000.

• Taxability ( 3,00,000-1,00,000= 2,00,000 @ 30% i.e) 60,000/-• Normal income (3,70,000-2,00,000=1,70,000) @ 10% Basic Exemption • Total Tax 60,000/-

• AssumptionThe Assets on which Depreciation has been charged that assets does not include in application of fund

The purchase of Fixed assets is from out of corpus fund