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INCOME TAX
NPO TAXATION
12A• Receipts > 1.5
lakh• Required• No tax on Income
80G / 35AC
• Raising Funds?• Optional• Tax deduction for
donors
TDS• Large Payments?• Compulsory • Deduct & Deposit
Tax
2
PAN / TAN
Permanent Account Number (PAN)
Form 49A
Apply before filing return 7-10 days
Tax Deduction Account Number (TAN)
Form 49B
Apply when deducting Tax
3
12A EXEMPTION CONDITIONS
Charitable activities
Minimum spending 85%
Arm’s length transactions with key persons
Keeping funds in approved modes
Filing tax return annually
4
UNSPENT FUNDS?
• Indefinite Accumulation
Upto 15%
• Use up next year• Carry forward Letter
Temporary under-spending
• Accumulate up to five years• Form 10; Board Resolution
Long Term Project
5
KEY PERSON PAYMENTS
Key Persons?
• Managers, Trustees, Board Members, • Large donors• Related parties
Payments?• Salary, etc.• Use / sale / purchase of property
Care?• Identified and approved• Disclosed – form 10B• Reasonable
Implications • Loss of Tax Exemption
6
ANNUAL TAX RETURN
Due Date • 30th September
Penalty • Rs. 100 per day
Enclosures• Audited Consolidated Accounts• Form 10B with annexure• TDS Certificates• Carry forward letter etc.
Form? • ITR 7
7
NEW ITR 7
Revised Form • ITR 7
Information Sought
• Sec. 2(15)• Objects of general public utility?• Business Activities?
• Business Turnover?• FCRA
• Registration? • Amount Received?
8
AUDIT REPORT
Form • 10B
Prepared by • Auditor
Shows• Amount
• Spent (incl. fixed assets)• Set apart• Carried forward
• Payments to key persons
9
DONATIONS
80G APPROVAL
Donor’s Benefit • 50% deduction from taxable income
Validity • Lifelong
Form • 10G
Documents needed
• 12A registration • Trust Deed / Bylaws• Audited Accounts (up to 3 yrs.)• Activity Report (up to 3 yrs.)
Cash Donations • No deduction to donor above Rs. 10,000
11
35AC APPROVAL
Donor’s Benefit • 100% deduction from taxable income
Validity• 3-5 years• For specific project only
Formalities• Apply to National Committee (Form)• Issue certificate to donors (58A)
Documents needed
• 12A registration • Trust Deed / Bylaws• Audited Accounts (up to 3 yrs.)• Activity Report (up to 3 yrs.)• Project Proposal• Project Budget
12
ANONYMOUS DONATIONS
Problem • Donors w/o name and address
Section • 115BBC
Applies to • Wholly Charitable Organisations
Restriction • Higher of 1 lakh or 5% of donations
Impact • Pay tax @ 30% on excess
Solution • Encourage cheque donations• Record donor’s name and address
13
SPECIAL ISSUES
BUSINESS-LIKE ACTIVITIES
15
THE CHARITABLE TRUNK
16
Donor Incentives
I Tax Exemption
35AC
80G 12A
10(23)(c)
Charitable Purpose
SEC. 2(15)Charitable Purpose
Conventional
Relief of the Poor
Education
Medical Relief
Modern
Environment
Monuments / Culture
Dynamic
Other useful purpose
Business ≤25 lakh
17
DEALING WITH 2(15)
Ensure business is Incidental
Gross revenue ≤ 25 lakh
If not, spin off as a separate organisation
Form of organisation? For-profit forms
NPO w/o tax exemption
18
INCIDENTAL BUSINESS
Incidental? Only activities connected with main objects
Gross Business Turnover Any amount for first five categories
≤ 25 Lakh for Sixth Category
19
BUSINESS: ACCOUNTING/ AUDIT
Separate books of account – sec. 11(4A)
Attach Audited P&L A/c
Transfer profit to main I&E A/c
Form 3CD audit report if Fees Turnover > 25 lakh
Sale Turnover > 1 crore
20
FURTHER READING
Accountable 15 : Basics of Tax Registration
Accountable 16 : Income Tax Return
Accountable 91 : Income Tax Exemption
Accountable 141 : Charitable purpose and Income Tax
Auditable 2 : Charitable Purpose - 1
Auditable 3 : Charitable Purpose - 2
Accountable 142 :Eleventh Commandment
Accountable 143 : Taxation Tricks and Traps
Auditable 12 : Taxing NGO Programs Outside India
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