1. • 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
2. 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.
3. Sections in Income tax act for NPO
• Section 11
• Section 12
• Section 13
4. 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).
5. 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.
6. 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).
7. 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
8. 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
9. 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.
10. 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
11. 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.
12. 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.
13. 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.
14. Meaning of Application of Fund
1. Revenue Expenditure
2. Purchase of Fixed Assets - Any Loan taken
against Fixed Assets
3. Repayment of Loan
4. Payment of any Taxes
5. Donation by one entity to other (within
current year Surplus)
15. Meaning of Corpus Donation
According 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.
16. 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.
17. 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).
18. 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.
19. 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.
20. Depreciation
• No depreciation is allowed on the Fixed Assets
where at the time of Purchase, claimed as
application of fund.
21. 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.
22. 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.
23. 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.
24. Example of clause 2 of Section 11(1)
Total Income earned in Previous year 2015-16 Rs. 1,00,000
Actual Receipts Rs. 75,000
Balance Received in Previous year 2016-17 Rs. 25,000
Permissible accumulation 15% of Rs. 1,00,000 in P/Y 2015-16 Rs. 15,000
Deemed 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.
25. Example of Anonymous Donation
• Case I:
Total Donation Rs. 25,00,000
Anonymous Donation Rs. 4,00,000
Exempt (1,00,000 or 5% of Rs. 1,25,000
Total 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.
26. 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.
27. Example of Capital Gain
Situation I Situation II
i. Net consideration 1,00,000 1,00,000
ii. Cost of the asset 40,000 40,000
iii. Capital Gain (i- ii) 60,000 60,000
iv. Investment in new asset 80,000 1,00,000
v. Shortfall in re-investment(i- iv) 20,000 0
vi. Deemed applied of gain(iii- v) 40,000 60,000
vii. Net Capital Gain taxable(iii- vi) 20,000 0
28. • 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
29. 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 3,70,000
Calculation 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/-
• Assumption
The 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
