Income Tax: The purpose of this amendment was to address certain cases faced by the tax department in which some non-profit organizations had tried to defeat the intention of the legislature by creating multiple trusts and making donations among themselves, pooling 15% of the income at each level.
The Indian tax and regulatory framework for non-profit organizations has been undergoing a major transformation over the past few years with several major amendments by the central government. In this article we will provide you information on how to file taxes for non-profit organizations as per the provisions of the Income Tax Act, 1961 (‘IT Act’) and the Foreign Contribution Regulations Act, 1999 (‘FCRA’). We are going to tell you about important changes in the tax and regulatory regime.
Major amendments made in the Income Tax Act –
Renewable every five years
Non-profit organizations will have to apply for renewal of registration as well as issue of 80G donation receipts every 5 years to claim exemption from income.
Earlier, unless cancelled, non-profit organizations used to get life-time registration along with income exempt registration for issuing 80G donation receipts for such entity. These registrations are now valid only for a period of 5 years and entities must apply for renewal of registration at least six months before the expiry of the five-year period.
Form 10B and 10BB
It is mandatory to submit audit reports in Form 10B and Form 10BB from the financial year 2022-23 onwards. Recently, the tax regulatory authorities have informed about the revised and detailed format of audit report to be submitted by the auditors of non-profit organizations in Form 10B and Form 10BB.
Form 10B
(I) The total income of such trust or institution, which, without giving effect to the provisions of sections 11 and 12 of the Act, exceeds Rs 5 crore during the previous year. (Or)
(II) Any trust or institution which has received any foreign money during the previous year. (Or)
(III) A trust or institution which has invested any part of its income outside India during the previous year.
Form 10BB
- The new audit report also requires a detailed level of disclosure.
Other Charities – Tax treatment of donations to other charities (applicable from FY 2023-24 and onwards):
The Finance Act, 2023 introduced a provision whereby only 85% of the eligible donation made by a trust or institution registered under section 12AA/12AB to another trust registered under section 12AA/12AB is eligible for grant of Rs. Will be considered as.
The purpose of this amendment was to address certain cases faced by the tax department in which some non-profit organizations tried to defeat the intention of the legislature by creating multiple trusts and making donations among themselves, depositing 15% of the income at each level. Was.
Restrictive provisions – Restrictions on donations from one non-profit entity to another non-profit entity (applicable from FY 2017-18 and onwards):
The tax laws have been amended to introduce restrictive provisions on donations from one non-profit organization to another. During this period, donation of corpus by a non-profit entity to any other non-profit entity is not allowed. Similarly, a non-profit organization can donate non-corpus only from the current year’s income to another non-profit organization.
Corpus contributions – Mandatory requirement to invest the corpus contributions received in the mode specified under section 11(5) of the IT Act (applicable from financial year 2021-22 and onwards):
Section 11(1)(d) of the IT Act provides that income received by way of voluntary contribution made with a specific direction, which will form part of the corpus of the trust or institution, shall be included in the total income of the trust or institution. Will not be done.
The Finance Act 2021 provides that to claim such exemption, such voluntary contribution must be invested in one or more of the forms or modes specified in sub-section (5) of section 11 created specifically for such corpus or Must be deposited.
Form 10BD and 10BE – Electronic reporting of receipt of all donations in Form 10BD and issuance of system generated donation receipts in Form 10BE to donors (applicable from FY 2021-22 and onwards)
Similar to filing of TDS returns and issuance of System Generated TDS Certificates, non-profit organizations have now been made mandatory to file a report in Form No. 10BD on the receipt of all types of donations during a particular financial year, i.e. the financial year in which Filing is required on or before May 31 of the year immediately following the year in which the donation is received.
Apart from this, the recipient of the donation is required to submit the donation receipt in system generated Form 10BE to the donor. The donor can claim deduction under Section 80G of the IT Act only if he has a valid system generated donation receipt in Form 10BE.
Early filing of Form 9A and 10 – Deadline for filing Form 9A and 10 has been extended by 2 months (applicable from FY 2022-23 and onwards):
Trusts and institutions which pool their income for the purpose of future application or opt for deemed application are required to file Form No. 10 or Form No. 9A respectively. The due date for filing such forms has been extended by 2 months for the financial year 2022-23 and thereafter. These forms are now required to be filed at least 2 months before the due date of filing income return i.e. August 31, 2023.
Amendment to Foreign Contribution Regulation Act
Charitable organizations are allowed to accept foreign contributions only after obtaining registration under the Foreign Contribution Regulation Act, 2010 (FCRA) or obtaining prior permission from the Central Government.
Indian registered non-profit organizations can receive foreign contributions only in the bank account designated by FCRA located at State Bank of India New Delhi Main Branch (NDMB), 11 Sansad Marg, New Delhi 110001.
A non-profit registered organization that has received a foreign contribution is required to use it for its own purposes and cannot donate it to another non-profit organization with FCRA registration.
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