Overview of Regulatory Framework and Statutory Laws for NPOs: Part 1

Income Tax and TDS

Definition of Charitable Purpose (Sec 2(15))

• Includes relief of the poor, education, yoga, medical relief, environment preservation, monuments, etc.

• Does not include activities in nature of business/trade unless:

  • Done in course of charitable work

  • Receipts do not exceed 20% of total receipts

Registration under Income Tax Act

New Regime (From 1.4.2021)

• Sec 12AB replaces 12AA

• Valid for 5 years, then renewal

• Types:

  • Re-registration under 10(23C)/12A/80G

  • Provisional registration

  • Statement and receipt of donations (80G)

Section 80G – Donations

Form 10BD

• File by 31st May for each FY

• Capture donor details incl. PAN/Aadhaar or ID proof

• Proportionate split allowed

Form 10BE

• Issue after filing 10BD

• Download from portal; only 10BE valid for claiming benefit

Income Exemptions (Sec 11)

Sec 11(1)

• Income from property held for charitable purposes not taxable if:

  • Applied in India for such purpose

  • Up to 15% can be set aside

Deemed Application (Form 9A)

• For income not received/applied within year

• To be used in following year

Accumulation (Form 10)

• Income not applied can be set apart for up to 5 years

• Must be declared and invested in specified modes

• Cannot transfer to non-12A entity

Sec 11(4) & 11(4A)

• Business income exempt only if:

  • Incidental to charitable objective

  • Separate books maintained

Section 11(5) – Modes of Investment

• Savings certificates, Post Office, Scheduled Banks

• Public sector bonds, UTI units, Government securities

• Property, Housing finance bonds, Infrastructure bonds, etc.

Disallowances

Cash Payments (Sec 40A(3))

• No deduction if > Rs. 10,000 paid in cash

• Applies to staff reimbursements too

Non-Deduction of TDS (Sec 40(a)(ia))

• 30% of expense disallowed if TDS not deducted

Sections 12A and 13

Sec 12A

• Conditions to avail Sec 11 & 12 exemptions

Sec 13(1)

• Exemptions not available if:

  • Trust benefits a particular religious community/caste

  • Trust benefits specified persons (Sec 13(3))

Sec 13(3) – Specified Persons

• Author/founder, major donor, trustee, manager, relatives, entities with substantial interest

Sec 13(2) – Deemed Benefit to Specified Persons

• Includes:

  • Lending without interest/security

  • Providing property/services without compensation

  • Overpayment of salary

  • Below-value sales or above-value purchases

Filing Process

• File Form 9A / Form 10 first

• Followed by Form 10B / 10BB (Audit Report)

• Then ITR-7 (Return)

Objectives of TDS

• Regular inflow to government

• Prevent tax evasion

• Widen tax base

Important TDS Sections

• 192 – Salary

• 194C – Contract payments

• 194J – Professional/technical fees

• 194I – Rent

Section 192 – TDS on Salary

• Based on slab rates

• ₹50,000 standard deduction

• Tax rebate ₹12,500 if income up to ₹5 lakh

New Tax Regime

• Optional from FY 2020–21

• No exemptions like 80C, HRA, etc.

Section 194C – Contractors

• 1% for individual/HUF, 2% for others

• Limits:

  • ₹30,000 single invoice

  • ₹1,00,000 aggregate per FY

Includes:

• Ads, catering, manpower supply, transport, manufacturing, etc.

Section 194J – Professional Services

• Exemption limit: ₹30,000

• Includes legal, medical, accountancy, consultancy, etc.

Section 194I – Rent

• Exemption limit: ₹2,40,000 per FY

Section 269ST – Cash Receipt Limit

• Max ₹2 lakh from a person per day/transaction/event

• Penalty equals amount received

Other IT Act Provisions

Sec 115BBC – Anonymous Donation

• Tax @ 30% plus cess if details missing

Sec 115TD – Exit Tax

• Triggered if:

  • Registration cancelled

  • Merger with non-eligible entity

  • Assets not transferred to eligible entity on dissolution

Sec 194Q – TDS on Goods Purchase (from 1 July 2021) Sec 194R – TDS on Perquisites (from 1 July 2022)

• Deduct 10% if value > ₹20k

• Depends on invoice name

Lower Tax Deduction Certificate (Sec 197)

• Apply to AO for reduced/no TDS