Any Society or Trust is required to file an application for registration under the Income Tax Act,1961 to the Commissioner of I. Tax within 1 year of creation.
In case of delay, it is entitled to exemption only from 1st day of financial year in which application is made.
Exemption is available from inception, if the Comm. is satisfied that the delay is for valid reasons. But it is very difficult to explain the genuine reasons for delay.
The organization must timely file its annual income tax return, immediately after the expiry of each financial year, before the due date to claim the exemption, as it is not automatic.
Organization may qualify for tax - exempt status if the following conditions are met:
A. The assessee is to apply for registration under the Income Tax Act,1961 to the Commissioner of I. Tax in Form No. 10A in duplicate before the expiry of 1 year from the creation of trust.
B. At least 85% of the income derived from property held under trust, should be applied to charitable or religious purposes in the relevant previous financial year in order to claim full tax exemption. Property of the trust also includes a business undertaking held under trust. U/s 10 (23C) (iv) or (v) The application for exemption has to be made by charitable and religious organization in the prescribed form No 56.
C. Surplus income for which an application has to be made in Form No. 10 may be accumulated for specific projects for a period ranging from 1 to 5 years;
D. The property should be held under trust wholly for charitable or religious purposes.
E. No part of the income or property of the organization may be used or applied directly or indirectly for the benefit of the founder, trustee, relative of the founder or trustee or a person who has contributed in excess of Rs. 50,000 to the organization in respective financial year;
F. The organization must timely file its annual income return, immediately after the expiry of each financial year.
G. The income must be applied or accumulated in India. However, trust income may be applied outside India to promote international causes in which India has an interest, without being subject to income tax.
H. Income from such property should be applied to charitable or religious purposes. (Exemption is available to the extent of such application)
I. The funds of the organization must be deposited as specified in section 11(5) of the income tax Act
To qualify for exemption u/ss. 11 and 12, a trust having total income
(before exemption u/ss. 11 and 12) exceeding Rs. 50,000/- must have
its accounts audited by a Chartered Accountant.
Anonymous donations of the following entities shall be included in the total income u/sec 115 BBC and taxed at the rate of 30%.
• Any trust or institution referred to in section 11
• Any university or other educational institution referred to in section 10(23C) (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) (iii a e) and (vi a) 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); (established for charitable purpose)
• Any trust or institution referred to in section 10(23C)(v). (established for public religious purposes or public religious & charitable purposes )
Anonymous donations not covered under section 115BBC
The following anonymous donations shall, however, be not be covered under section 115BBC:
(a) Donations received by any trust or institution created or established wholly for religious purposes.
(b) Donations received by any trust or institution created or established for both religious as well as charitable purposes (other than any anonymous donation made with a specific direction that such donation is for any university or other educational institution or any hospital or other medical institution run by such trust or institution.)
Disqualification from Exemption
Following groups are ineligible for tax exemption: all private religious trusts; and charitable trusts or organizations created after April 1, 1962, and established for the benefit of any particular religious community or caste. But note that a trust or organization established for the benefit of "Scheduled Castes, backward classes, Scheduled Tribes or women and children" is an exception; such a trust or organization is not disqualified, and its income is exempt from taxation.
In order to attract voluntary contributions, the trust or society needs to be registered under section 80(G) and section 35 (AC) of the income tax act which provides exemption for the donors. Following are the terms and conditions applicable for above both sections.
TAX EXEMPTION FOR NOTIFIED CHARITABLE SOCIETIES U/s 10(23C) (iv) and (v)
Any income of any institution established for charitable purposes is exempt. For getting exemption under these clauses, following requirement must be completed:
i. Making an application in Form No. 56
ii. Applying its income or accumulating it for application, wholly & exclusively to its objects;
iii. Notice of accumulation u/s 11(2) will have to be given to the assessing officer in Form No. 10
(iiiad) educational institution => its annual receipts is less than Rs. 1 crore;
(iii a e) Any hospital => its annual receipts is less than Rs. 1 crore;
FORM 56 = 10(23C) (iv) & (v) [ Rule 2C(1) ] => Dir. Genaral
(iv) charitable notified by C.Govt. in official. Gazzt.
(v) Public religious & charitable
FORM 56D = 10(23C) (vi) & (via) [ Rule 2CA ] => Dir. Genaral or Chief Comm.