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NGO AND TRUST
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NGO AND TRUST
Are you aware that you can save money on taxes by making donations or engaging in religious or philanthropic activities? According to 80G of Income Tax Act, your taxable income can be calculated by deducting your contributions to NGOs, Central and State Relief Funds, and other charitable organizations.
Charity is humanitarian voluntary assistance to those in need, whether in the form of cash or in kind. As a result, there are several non-profit organizations and non-governmental organizations (NGOs) that raise money for philanthropic causes all over the world by establishing trusts or institutions. Trusts may be created for philanthropic, religious, or both purposes.
These institutions play a vital role in supporting the government's economic development and social welfare objectives. Their more localized strategy and outreach aid in identifying those in need and providing assistance. Because of this, the government has given charity organizations a number of tax breaks and incentives. Additionally, individuals who donate to these organizations or trusts can benefit from Section 80G.
Trust definition Under Indian Trust Act , 1882
In India, anyone can establish a trust. Private trusts created in India are governed by the Indian Trust Act, 1882 (the "Act"). India as a whole is covered by this Act. However, it does not apply to the Waqf, which are the relationships between members of an undivided family that are established by personal or customary law as well as endowments for charity or religion. In India, state-specific laws, like the Maharashtra Public Trust Act of 1950, often regulate public trusts.
Participants in a Trust
i) Author: The individual who wishes to transmit his property and entrusts the establishment of the trust to another is known as the author, settlor, trustor, or donor.
ii) Trustee: The individual who consents to the establishment of the trust.
iii) Beneficiary: The individual who will soon gain from the trust.
Trust Types
i) Private Trusts: A closed group is the beneficiary of a private trust. Stated differently, it is possible to identify the beneficiaries. For instance, a trust established for the author's friends and family.
ii) Public Trusts: A public trust is established for the benefit of a broad population, or the general public. For instance, public charitable institutions run by non-profit NGOs.
Registration of Trust
According to Section 5 of the Act, in regard to:
i) Immovable property: A non-testamentary document must establish a private trust in writing. Additionally, the non-testamentary document must be registered and signed by the trustee or the trust's author. Registration is not required, nevertheless, if the non-testamentary instrument was made by a will.
ii) Moveable property: A trust can be established in connection with moveable property in the same way that it is in the case of immovable property, or it can be established by giving the trustee ownership of the property. Registration is therefore not required.
Registration of Trust
According to Section 5 of the Act, in regard to:
i) Immovable property: A non-testamentary document must establish a private trust in writing. Additionally, the non-testamentary document must be registered and signed by the trustee or the trust's author. Registration is not required, nevertheless, if the non-testamentary instrument was made by a will.
ii) Moveable property: A trust can be established in connection with moveable property in the same way that it is in the case of immovable property, or it can be established by giving the trustee ownership of the property. Registration is therefore not required.
What is NGO?
In order to solve societal challenges, promote positive change, and stand up for the disadvantaged, non-governmental organizations (NGOs) are essential. NGO registration, the legal establishment process, is the cornerstone of any significant NGO. This article empowers ambitious changemakers to start their journey of social impact by providing a thorough guide to overcoming the complexities of NGO registration in India.
The legal procedure of NGO registration grants organizations the official status necessary to engage in charitable endeavors. It acts as a doorway to legitimacy, openness, and other advantages, such as tax breaks. NGOs in India may be registered under a variety of legal forms, including Section 8 Companies, Societies, and Trusts.
NGO Registration Process
The steps involved in registering an NGO in India are as follows:
1. Type Determination: Depending on the goals of your organization, select the appropriate NGO structure, such as a Trust, Society, or Section 8 Company.
2. Name Selection: Pick a distinctive name that embodies your purpose.
3. Drafting the Memorandum and Articles of Association: Draft the Memorandum and Articles of Association.
4. Governing Body Formation: Form a managing committee or governing body.
5. Registered Office Designation: Give a formal address where others can reach you.
6. Documentation Preparation: Compile the necessary photos, address proofs, and identity documents.
7. Application for Registration Application submission: Send the application to the appropriate official, such as the Registrar of Companies, Registrar of Societies, or Registrar of Trusts.
8. Review and Approval: Await review and any requests for clarification.
9. Obtaining the Registration Certificate: Get the registration certificate after being approved.
10. Apply for Tax Exemptions: Under the appropriate sections, submit an application for a tax exemption.
11. Compliance and Reporting: Comply with legal obligations, such as maintaining accounts, filing yearly returns, and submitting audited financial statements.
Taxation of Trust and NGO under Income Tax Act
The goal and operations of the trust determine how registered trusts are taxed. The following are important considerations for registered trust taxation:
1. Tax Exemptions
Depending on the goals and operations of the trust, registered trusts may be excused from paying taxes under specific circumstances. For instance, section 11 of the Income Tax Act of 1961 provides tax deductions for trusts established for charitable purposes. The trust must, however, adhere to specific requirements, such as allocating at least 85% of its income to charitable causes and allocating the trust's earnings to such causes.
2. Business Income Tax
The registered trust will be subject to the same taxes as any other business entity if it is involved in a business activity. The trust will have to pay taxes on any income derived from the business activity and file income tax reports.
3. Tax on Rental Income
The registered trust shall be liable for income tax on any rental income derived from the rental of real estate, including buildings or land. The income bracket that the trust is in will determine the income tax rate.
4. Capital Gains Tax
Any income received by the registered trust from the sale of assets, such as real estate or stock, will be regarded as capital gains and subject to the appropriate tax. The kind of asset sold and how long it was held will determine the capital gains tax rate.
5. GST
If registered trusts engage in taxable activities like selling goods or doing services for a charge, they may also be obliged to pay GST.
NGO Registration Process
The steps involved in registering an NGO in India are as follows:
1. Type Determination: Depending on the goals of your organization, select the appropriate NGO structure, such as a Trust, Society, or Section 8 Company.
2. Name Selection: Pick a distinctive name that embodies your purpose.
3. Drafting the Memorandum and Articles of Association: Draft the Memorandum and Articles of Association.
4. Governing Body Formation: Form a managing committee or governing body.
5. Registered Office Designation: Give a formal address where others can reach you.
6. Documentation Preparation: Compile the necessary photos, address proofs, and identity documents.
7. Application for Registration Application submission: Send the application to the appropriate official, such as the Registrar of Companies, Registrar of Societies, or Registrar of Trusts.
8. Review and Approval: Await review and any requests for clarification.
9. Obtaining the Registration Certificate: Get the registration certificate after being approved.
10. Apply for Tax Exemptions: Under the appropriate sections, submit an application for a tax exemption.
11. Compliance and Reporting: Comply with legal obligations, such as maintaining accounts, filing yearly returns, and submitting audited financial statements.
Exemptions under Income Tax Act
A charity trust's income is free from income tax under the Income Tax Act. However, an exemption will only be given if the requirements are met. The following are the conditions that are specified:
i) As a charitable trust, which is exempt from the Act, the trust must be registered with the Commissioner of Income Tax. The registration process must follow the instructions found in Section 12A of the Act.
ii) A trust deed or other comparable legal requirement should bind the trust's assets.
iii) The property should be held for religious or philanthropic purposes.
iv) No specific caste or religious grouping should have benefited from the creation of the trust.
v) The settlor or anyone who would be regarded as a close relative of the settlor should not benefit from the trust's income.
vi) An exemption will only be granted for the percentage of money used for religious or charitable reasons.
vii) The trust should be required to submit its books of accounts for audit if its revenue over the basic exemption ceiling. Assessees should be aware that income in this case refers to the trust's earnings before the Act's exemption for charitable trusts was granted.
viii) If the trust's income over the basic exemption limit, the trust must file an income return. Depending on the specifics of the trust, there are several deadlines for filing the return.
ix) It is possible for the trust to generate revenue that can be saved for future use. In these situations, the income that is saved for later use ought to be invested independently. The investment method must adhere to the Act's restrictions.
Computation of tax
The tax rates that apply to an individual (who is neither a senior citizen nor super senior citizen) also apply to a trust.
| Total Income | Tax Rate |
|---|---|
| Upto Rs. 250,000 | Nil |
| Rs. 500,000 to Rs. 10,00,000 | 5% |
| Above Rs. 10,00,000 | 30% |
- FAQ
1. What is an NGO under the Income Tax Act?
A non-profit organization registered under Indian law to engage in social welfare, religious, or charitable endeavors is known as an NGO (Non-Governmental Organization). NGOs can be registered as Section 8 companies, trusts, or societies for tax purposes.
2. How is a Trust defined under the Income Tax Act?
According to the Income Tax Act, a trust is a contract in which a settlor transfers property to a trustee for the benefit of third parties, or beneficiaries. It is mostly utilized for religious or charitable reasons. The Indian Trusts Act of 1882 or other applicable statutes may be used to establish a trust.
3. What are the key sections of the Income Tax Act applicable to NGOs and Trusts?
i) Section 11: Income from charitable or religious trusts is exempt.
ii) Section 12A: Trust or non-profit registration for tax exemption.
iii) Section 80G: Deduction for contributions to non-profit organizations or charitable trusts.
iv) Section 10(23C): Certain trusts and NGOs involved in philanthropic or religious endeavors are exempt from paying taxes.
4. What is Section 12A Registration?
For trusts and NGOs to qualify for tax exemptions under the Income Tax Act, they must register under Section 12A. To receive the benefits of tax exemption under Sections 11 and 12, registration is required.
5. What are the conditions for 12A registration?
The trust must be created for religious or benevolent reasons, and it must submit an application for registration within a year of its creation. The trust must turn in the necessary paperwork, such as the trust deed, yearly reports, and an account of the operations that were conducted.
6. What is the significance of Section 80G?
A tax deduction on the amount donated to a registered trust or non-profit organization is available to individuals or organizations under Section 80G. In addition to offering tax advantages to the givers, this encourages people to make charitable contributions.
7. Can an NGO or Trust get exemptions on its income?
Yes, as long as they fulfill the necessary requirements, NGOs and trusts engaged in religious or charitable endeavors are eligible for income exemptions under Section 11. The money must be used for religious or charity endeavors rather than for personal gain.
8. What is the role of the Income Tax Department in overseeing Trusts and NGOs?
The Income Tax Department makes ensuring that trusts and NGOs follow the guidelines set forth in the Income Tax Act. To make sure they are abiding by the law and fulfilling their stated purpose, it keeps an eye on their income, tax-exemption claims, and activities.
9. Can an NGO or Trust be revoked or disqualified from tax exemptions?
Yes, if the NGO or Trust is found to be in violation of the terms outlined in the Income Tax Act, the tax exemption may be revoked. For instance, the exemptions may be taken away if the money is misappropriated or utilized for private benefit.
10. What is the process for filing income tax returns for NGOs and Trusts?
Every year, NGOs and trusts must submit their income tax returns (ITR-7). They have to keep accurate records of their earnings, outlays, and activities. It is necessary to record income from investments, charitable contributions, and other sources.
11. Are donations to an NGO or Trust eligible for tax deductions?
Indeed, under Section 80G, contributions paid to qualified NGOs or trusts may be subtracted from the donor's taxable income. To receive this advantage, the NGO or Trust must be registered under Section 80G.
12. What is the process for applying for 80G and 12A registration?
i) 12A Registration: In order to be registered under Section 12A, a trust or non-profit organization must submit an application on Form 10A to the Income Tax Department together with the required paperwork.
ii) 80G Registration: The NGO or Trust must submit an application for registration using Form 10G together with the necessary paperwork, such as the trust deed and activity documentation.
13. Can an NGO or Trust use income for non-charitable purposes?
No, trusts or NGOs that are registered for religious or charitable reasons are required to use their profits to further the goals for which they were founded. Their tax-exempt status could be revoked for any cash that isn't utilized for charitable causes.
14. What records must an NGO or Trust maintain?
An NGO or trust is required to keep track of its revenue, expenses, donations, and operations. Annual audits of the books of accounts are required, and the Income Tax Department must receive the audit report.