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Tax exemption for non profit activities

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Tax exemption for non profit activities

  1. 1. TAX EXEMPTION FOR NON-PROFIT ACTIVITIES<br />FILMA VARGHESE<br />TRADE MARK DEPARTMENT<br />
  2. 2. INTRODUCTION<br />In India, NPOs are commonly known as Non-Governmental Organizations (NGOs).<br />The following laws or Constitutional Articles of the Republic of India are relevant to the NGOs:<br /><ul><li>Articles 19(1)(c) and 30 of the Constitution of India
  3. 3. Income Tax Act, 1961
  4. 4. Charitable and Religious Trusts Act, 1920
  5. 5. Religious Endowments Act, 1863
  6. 6. Charitable Endowments Act, 1890
  7. 7. Public Trusts Acts of various states
  8. 8. Societies Registration Act, 1860
  9. 9. Section 25 of the Indian Companies Act, 1956
  10. 10. Foreign Contribution (Regulation) Act, 1976</li></li></ul><li>STRUCTURE OF A NON PROFIT ORGANIZATION IN INDIA<br />
  11. 11. NON PROFIT ORGANISATIONS<br />PUBLIC TRUSTS: <br /><ul><li>Not-for-profit entity in India
  12. 12. Trust established for charitable purposes
  13. 13. Benefit of public at large or a class of beneficiaries
  14. 14. Entitled to special treatment under the law of taxation</li></ul> <br />SOCIETIES:<br /><ul><li>Registered for charitable purposes
  15. 15. Promotion of Literary, Scientific & Charitable purposes</li></ul> <br />SECTION 25 COMPANIES:<br /><ul><li>Promoting commerce, art, science, religion, charity or any</li></ul> other useful object<br /><ul><li>Apply its profits or other income for promoting its objects</li></li></ul><li>COMPARISONS AMONG TRUST, SOCIETY & SECTION 25 COMPANY<br />
  16. 16. TAX-EXEMPT STATUS FOR NGOs<br />CONDITIONS:<br /><ul><li>Lawful purpose
  17. 17. Religious or charitable purposes
  18. 18. Registered with the CIT under Section 12 A
  19. 19. 85% of its income in any financial year (April 1st to March</li></ul>31st)<br /><ul><li>Surplus income - specific projects
  20. 20. Funds - deposited as specified in section 11(5) of the Income </li></ul>Tax Act<br /><ul><li>Income or property - not be used or applied directly or </li></ul> indirectly <br /><ul><li>File its annual income return
  21. 21. Income must be applied or accumulated in India
  22. 22. Trust income may be applied outside India to promote</li></ul> international causes<br />
  23. 23. PROVISIONS IN THE INCOME TAX ACT, 1961<br />The Income Tax Act gives all categories equal treatment, in terms of exempting their income and granting 80G certificates, whereby donors to non-profit organizations may claim a rebate against donations made. <br />
  24. 24. PROVISIONS IN THE INCOME TAX ACT, 1961 IMPACTING TRUSTS<br />SECTION 2(15)<br />Defines a charitable objective<br />SECTION 10(23C)<br />Provides exemption to educational, medical, charitable and public religious institutions, existing not for the purposes of profit.<br />SECTION 11 - 13<br />Provides for tax treatment in case of charitable trusts<br />SECTION 80 G<br />Deals with deduction in respect of donations to certain funds, charitable institutions etc.<br />SECTION 161 - 164<br />Deals with liability in special cases i.e. of representative assessee, which includes taxation of private discretionary trusts.<br />
  25. 25. AUTHORITY TO WHOM RETURNS HAVE TO BE FILED<br />Not-for-profit organizations are required to file annual tax returns and<br />audited account statements with various agencies. <br />AT THE STATE LEVEL<br /><ul><li>Charity Commissioner (for trusts)
  26. 26. The Registrar of Societies (referred to in some states by different titles, including the Registrar of Joint Stock Companies), and
  27. 27. The Registrar of Companies (for section 25 companies).  </li></ul>AT THE NATIONAL OR FEDERAL LEVEL<br /><ul><li>The income tax department and Ministry of Home Affairs. (only for not-for-profit organizations receiving foreign contributions).</li></li></ul><li>INCOME OF TRUST EXEMPTED UNDER SECTION 11<br />
  28. 28. NO EXEMPTION UNDER SECTION 11<br />
  29. 29. ANONYMOUS DONATIONS<br />Anonymous donations – Taxed at the rate of 30% - U/s 115 BBC<br /><ul><li>Any trust or institution referred to in section 11;
  30. 30. Any university or other educational institution referred to in section</li></ul> 10(23C)(iii ad) and (vi) i.e. its annual receipts is less than or more than<br /> Rs. 1 core<br /><ul><li>Any hospital or other institution referred to in section 10(23C)(iii a e)</li></ul> and (iv a) i.e. its annual receipts is less than or more than Rs. 1 core<br /><ul><li>Any fund or institution referred to in section 10(23C)(iv); (established</li></ul> for charitable purposes<br /><ul><li>Any trust or institution referred to in section 10 (23C) (v); (established</li></ul> for public religious purposes or public religious & charitable purposes)<br />
  31. 31. LEGAL COMPLIANCES<br />
  32. 32. LEGAL COMPLIANCES<br />
  33. 33. TAXABILITY OF PUBLIC TRUST AT A GLANCE<br />
  34. 34. CUSTOMS DUTY<br /><ul><li>NPO’s involved in relief works, distribution of relief supplies to the needy – 100% exempted on the import of food, medicine and clothing.
  35. 35. Exemption for scientific/technical equipment and components intended for Research Institutes.</li></li></ul><li>CASE STUDIES<br />CIT Vs Oxford University Press (Bom) 221 ITR 77<br />As per wider and extensive meaning, the word ‘education’ would connote every acquisition of further knowledge. However section 10 (22) of the I. T. Act, which grants exemption to the income of a ‘university or other educational institution, existing solely for educational purposes not for profit’ the word ‘education’ would connote the process of training and developing the knowledge, skill, mind and character.<br />Institute of Mining and Mines surveying Vs. CIT, (1994) 208 ITR 608 (Pat)<br />The coaching of students in an institution is not imparting education, which can be said to be a process of training and developing of students and character of students by normal schooling. A coaching institution cannot be said to be an institution where normal schooling is done. Coaching institute was held not to be entitled to exemption from Income Tax U/s 10 (22) of the Act.<br />
  36. 36. CASE STUDIES<br />CIT Vs. Bar Council of Maharashtra (1981) 130 ITR (SC)<br />The State Bar Council is a body constituted for general public utility since the advancement of any object beneficial to even a section of public as distinguished from an individuals would be an object of public utility and consequently a charitable purpose.<br />CIT Vs. Jodhpur Chartered Accountants Society (2002) 258 ITR 548 (Raj.)<br />Society of Chartered Accountants being engaged in activities of general public utility is a charitable trust.<br />CIT Vs. St. George Forana Church (1988) 170 ITR 62 (Ker.)<br />Rent derived from additions to trusts buildings is exempt from tax when rent was used for religious purposes.<br />
  37. 37. CASE STUDIES<br />CIT Vs. Ganesh Ram Laxminarayan Geol (1984) 147 ITR 468 (MP)<br />It has been held that letting of Dharmashala’s, auditoriums, running of libraries, etc could not be considered as business activities and any income generated from such be considered as income from properties held under trust. It was held that letting out of dharmashala’s was an activity towards attainment of the objects of the organization and profit making was not the profit motive and therefore it could not be considered as business activity.<br />
  38. 38. THANK YOU<br />THANK YOU<br />

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