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Income Tax filing of Non Profit Organizations

September 30, 2017

Which NPOs/ Trusts needs to file their Income Tax Returns:-

  • All NPOs having their income during the previous year exceeding the maximum amount which is not chargeable to income tax are required to file their Income tax returns. Currently Rs. 2.5 Lakhs per year is the maximum amount which is not chargeable to income tax.

Therefore trust & societies are required to file their return if the income is more than the basic exemption limit and in case of  Section 8 company return needs to be filed irrespective of the Income as for Section 8 company there is no basic exemption limit.

Note: For the purposes of filing the return, Income should be computed without giving effect to the provisions of sections 11 and 12 of the Act. The return has to be filed as per the provisions of section 139(4A) and (4C) of the Income Tax Act, 1961.

 According to section 139 (4D) medical institutions under section 10(23C)(iiiae) having gross receipts of Rs. 1 crore or less are  also required to file return if the income exceeds the maximum amount which is not chargeable to income-tax during the previous year.

  • According to section 139 (4D) medical institutions under section 10(23C)(iiiae) having gross receipts of Rs. 1 crore or less are also required to file return if the income exceeds the maximum amount which is not chargeable to income-tax during the previous year.
  • Organizations/Institutions notified under section 35(i), (ii) & (iii) are also required to file return if the income exceeds the maximum amount which is not chargeable to income-tax during the previous year.
  • Organizations/ Institutions claiming exemption under sub-section (iiiab) & (iiiac) of Clause 23C of Section 10 i.e. university or other educational institution, Medical institution existing solely for educational/medical purposes & not for purposes of profit & which is wholly or substantially financed by the Government shall  have to file their Income Tax Return u/s. 139 of the Income Tax Act. Such universities, hospitals, educational institutions, etc., have to disclose their name, annual receipts and amount eligible for exemption in ITR 7.
  • Charitable / Religious organizations, which are not registered u/s 11 or u/s 10(23C) of the Income Tax Act and do not enjoy any exemption on their income are liable to file the return if the voluntary contribution received by them or their income exceeds the maximum amount which is not chargeable to income-tax in any previous year. Such organizations should also file their income-tax return in ITR-7.

Some Important concepts and their place in ITR

  • Business Receipts:

According to section 2(15), the advancement of any other object of general public utility shall not be a charitable purpose, if it involves the carrying on of any activity in the nature of trade, commerce or business, unless:

  1. such activity is undertaken in the course of actual carrying out of such advancement of any other object of general public utility; and
  2. the aggregate receipts from such activity or activities during the previous year do not exceed 20% of the total receipts, of the trust or institution undertaking such activity or activities, of that previous year.

In other words, advancement of any other object of charitable purpose shall not be deemed as charitable if receipts from any commercial activity exceed 20% of total receipts.

In ITR 7 there is a column to disclose percentage of business receipts vis-a-vis total receipts in order to ensure that such conditions (as given hereinabove) is not violated.

 

  • Application of income by a Trust:-

Income of charitable or religious trust is exempt if 85% of its income is applied for charitable or religious purposes in India. If income applied for charitable or religious purposes during the previous year falls short of 85% because such income has not been received during the year or due to any other reason, an option is given to assessee to apply such income in future years in prescribed manner.

Section 11 of the Income Tax Act provides two options to the assessee trust when the application of income falls short of 85% of income.

            Option – I: Section 11(1)

Where the income could not be applied due to non-receipt of the income or any other reason the income can be spent in the year of receipt/next year.

Form 9A has to be filed for exercise of option under section 11(1) for accumulation Upto Five years.

Separate row is provided in ITR 7 requiring trust to confirm if it has filed Form 9A to exercise such an option and the date of filing of such form.

Option - II: Section 11(2)

An accumulation for specific project for specific purpose is also allowed for a maximum period of five years.

Form 10 has to be filed for option u/s 11(2) for accumulation Upto Five years.

Note: The option in Form No.9A referred to in sub-rule (1) and the statement in Form No.10 referred to in sub-rule (2) shall be furnished electronically either under digital signature or electronic verification code. 

 

Return Filing:-

The Return has to be filed electronically in ITR-7.  E-filing of Income Tax Return is mandatory. Signature can be put through digital signature, EVC or sending physical copy of  the ITR-V duly signed to CPC, Bangalore.

Due Date of Filing Income Tax return:-

  • Where Audit is not required under any act then the due date is 31st July of AY.
  • In all other cases, the due date of filing of return is 30th September. of the AY.

Notes: - In order to claim the benefit of accumulation of income for five years, Form 10 has to be submitted within the time limit provided for submitting the return u/s. 139(1) and also in such cases return of Income has to be filed in time by the organization.

Under section 272A (2)(e), any voluntary organization which fails to furnish the return of income which is required to be furnished under sub-sections (4A) and (4C) of section 139 or fails to furnish it within the time allowed and in the manner required under that sub-section, it shall pay by way of penalty a sum of Rs. 100 per day during which the failure continues. Before imposing such penalty, an opportunity of being heard shall be given to the organization.

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