NGO's in India

Gifting by NGO’s – Income Tax Laws applicable

NGOs CAN MAKE GIFTS

By Taxation Laws (Amendment) Act, 2005 section 56 has been altered and exemption limit for gifts has been increased from Rs, 25,000 to Rs. 50,000.

Further, the list of exemption was expanded to exclude sum of money (gift) or gift, donation or grant received from any trust or institution registered under Section 12AA or covered by provision of Section 10(23C) or from a local authority, i.e., panchayat, municipality, district board and cantonment board etc. It may be noted that the provisions of Section 2(24) (xiii) have not been covered by the amendment to include the sum received by way of gifts as income by including sub-clause (vi) of Section 56(2) which would be applicable in respect of gift received on or after 1st April, 2006. The above amendment has been made effective in respect of the sum of money/gift received on or after the 1st day of April, 2006. However, exemption in respect of the gift received from local authority or charitable institution would have retrospective effect i.e., from the A.Y. 2005-06.

ngo gifts income tax

Amendments by the Taxation Laws (Amendment) Act, 2006

In section 56 where gifts above specified limits received from specified persons are exempted, further provision have been inserted to enlarge the scope of exemption. The exempted categories of gifts will include a local authority as defined in the Explanation to clause (20) of section 10; a fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23C) of section 10; or from a trust or institution registered under section 12AA.

The amount of exempted gift has been increased from Rs 25000 to Rs 50000 with effect from the l st day of April, 2006. So, the limit of Rs 25000 is applicable on gifts received after the lst day of September, 2004 but before the lst day of April, 2006.

IMPORTANT AMENDMENTS BY THE FINANCE ACT, 2006

I. Voluntary contribution received by university or hospital referred to in section 10 (23C) (vi)/(via) to be treated as their income [Amendment of section 2 (24) (iia) effective from assessment year 1999-2000]

The finance Act, 2006 has amended section 2(24) (iia) so as to provide that voluntary contribution received by any university or other educational institution referred to in sub-clause (vi) or by any hospital or other institution referred to in sub-clause (via) of clause (23C) of section 10 shall be included in the definition of income.

Third proviso to section 10 (23C) provides that any university or other educational institution or any hospital or any medical institution referred to in section 10(23C)(vi)/(via)shall apply its income or accumulate it for application, wholly and exclusively to the objects for which it is established and in a case where more than fifteen per cent of its income is accumulated on or after the 1-4-2002, the period of the accumulation of the amount exceeding fifteen per cent of its income shall in no case exceed five years.

Effect of amendment is that-

(i) Voluntary contribution received by such university or medical institution shall be treated as its income with retrospective effect from the assessment year 1999-2000.

(ii) If the university or medical institution has applied 85% of its income (including such voluntary contributions) then nothing would be taxed provided the accumulated amount is applied as per conditions specified in this behalf.

II. Voluntary contribution received by university or medical institution referred to in section 10 (23C) (iiiad) (iiiae) to be included in their income [from assessment year 2007-08]

The Finance Act, 2006 has amended sub-clause (iia) of clause (24) of section 2 to provide that voluntary contributions received by any university or other educational institution referred to in sub-clause (iiiad) or by any hospital or other institution referred to in sub-clause (iiiae) of clause (23C) of section 10 shall be included in their income.

III. Taxing anonymous donations and consequential amendments [Section 115BBC 10(23C) and 13]

The Finance Act, 2006 has inserted a new section 115BBC w.e.f. 1-4-2007 i.e., from assessment year 2007-08 so as to provide that any income by way of anonymous donations received by a trust, fund, institution, etc. referred to in that section shall be included in the total income of the assessee, being the person in receipt of such income on behalf of the trust, fund, institution, etc. and shall be chargeable to tax at maximum marginal rate. The following points cover the provisions of this proposed section in detail.

What is Anonymous Donation?

For the purpose of this section, ‘anonymous donation’ means any voluntary contribution referred to in section 2(24) (iia), where a person receiving such contribution does not maintain a record of the identity indicating the name and address of the person making such contribution and such other particulars as may be prescribed.

Thus, a voluntary contribution shall be treated as anonymous donation, if the recipient thereof doesn’t maintain a record of the identity (name, address and other prescribed particulars) of the person making such contribution. [Section 115BBC(3)]

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