It is necessary for a charitable trust to get itself registered under section 12A. Such benefits will, however, accrue only to the trust and not to the donors. Following are the approvals a trust may seek so as to give ample reward to the donors in respect of the donations made to the trust. Even existing trusts have to periodically seek continuation of the approval.
INCOME TAX EXEMPTION FOR NGO UNDER SECTION 80G
APPROVAL OF TRUST UNDER SECTION 80G OF THE INCOME-TAX ACT
If the trust is willing to give some benefit to its donors, then the trust should seek and obtain approval under section 80G (5).
As per Section 80G of the Income Tax Act, donations paid or given to any institution or fund established in India for a charitable purpose is eligible for deduction (normally 50%) in the hands of the donor subject to the following conditions:
I. The income of the institution is exempt under section 11 or 10(23) or (23AA) or (23C) of the Act.
II. The funds of the institutions are applied only for charitable purposes.
III. The institution should not be for the benefit of any particular religious community or caste
IV. The institution maintains regular accounts of its receipts and expenditure.
V. The institution shall be approved by the Commissioner of Income Tax.
Main points in this respect are:
I. Section 80G applies to donations to any institution or fund, only if it is established in India for a charitable purpose and if it fulfills the stipulated conditions.
II. Following conditions are required to be fulfilled under section 80G(5)-
(a) the instrument under which the institution or fund is considered does not, or the rules governing the institution or fund do not contain any provision for the transfer for application at any time of the whole or any part of the income or assets of the institution or fund for any purposes other than charitable purposes;
(b) the institution or fund is not expressed to be for the benefits of any particulars religious community or caste;
(c) the institution or fund maintains regular accounts of its receipts and expenditure;
(d) the institution or fund is either constituted as a public charitable trust or is registered under the Societies Registration Act, 1860, or under any law corresponding to that Act, in force in any part of India or under section 25 of the Companies Act, 1956, or is a University established by law, or is any other educational institution recognized by the Government or by a University established by law, or affiliated to any University established by law or it is an institution financed wholly or in part by the Government or a local authority, and
(e) in relation to donations made after the 31st day of March 1992, the institution of the fund is for the time being approved by the Commissioner in accordance with rule 11AA.
III. The application should be made in Form No.10G, prescribed under rule 11AA and it is required to be submitted to the jurisdictional Commissioner of Income-tax.
IV. The trust is necessarily required to be registered with the Commissioner under section 12A. A trust can apply for registration under section 12A and simultaneously seek approval under s. 80G (5).
V. There is a time limit of 6 months (from the date on which such application was made), within which the Commissioner shall pass an order either granting the approval or rejecting the application. However, any time taken by the applicant is not complying with the directions of the commissioner is excluded.
VI. The period of validity of approval is specified in the order of approval, which cannot exceed five assessment years. Before the expiry of this period, the trust should seek continuance the approval, by submitting the application in Form No. 10G again.
VII. The approval u/s. 80 G is issued in writing after the Commissioner is satisfied with the genuineness of the activities of the trust and about the fulfillment of all conditions laid down in section 80 G (5) (i) to (v).
FILLING UP FORM NO. 10G
Filling up the form is fairly easy when one has a copy of the trust deed, order of approval of the Commissioner under section 12A, and the account details. If the trust has submitted an application for registration under section 12A and the application is pending, a copy of the application may be enclosed. In case of an existing trust registered under section 12A, the order of registration of the trust is to be enclosed. If the trust seeks a continuance of section 80G approval, a copy of the last approval, if any, has to be enclosed.
In column 9, only if some accumulation has been made for the purposes of the objects of the trust, the same has to be disclosed.
In column 10(i), along with the details, a copy of the latest balance sheet may be furnished as proof of the same. The investment pattern of the trust has to be such that the answer to column 10(ii) is in the affirmative only. If it is otherwise, then the application is likely to be rejected.
In column 11, only if the trust is carrying on any business, the same is to be disclosed. It may be borne in mind that the carrying on of business is permitted only if the same is incidental to the attainment of the main objects of the trust. Thus, if the answer to column 11(ii) is in the negative, the trust will not be entitled to the benefit of approval under section 80G.
It may be noted that column 12 requires details relating to donations received in-kind only, and not to those received in cash/cheque/draft.
The answer to column 14 has to be in the negative only.
The rest of the columns are self-explanatory and can be filled up easily.
FILLING OF APPLICATION
The trust seeking approval under section 80G (5) for the first time, should submit the following:
(a) Form No. 10G duly filled up, in triplicate;
(b) Copy of the trust deed, if the objects of the trust are to be gathered therefrom;
(c) Copy of the order of registration of the trust under section 12A or the copy of the application form in Form No. 10A;
(d) Notes on activities of the trust since inception or for the last three years, whichever is less;
(e) Copies on activities of the trust since inception or for the last three years whichever is less, and
(f) Details of the modes of investment of the trust funds.
The above are to be filed in the office of the Commissioner. The documents filed may be clearly listed in a cover letter and in the copy of this letter, the tapal clerk will affix the signature along with the seal. It is advisable for the trust to furnish the phone number of the trustee to be contacted for any reference.
DEDUCTION UNDER SECTION 35AC
Section 35AC of the Income-tax act permits deduction of the whole of the amount of donation to trust or fund or institution approved by the National Committee for carrying out any eligible project or scheme. Such deduction is allowed on furnishing of a certificate for such payment in the prescribed Form No. 58A under rule11 (1) of Income-tax Rules. Such deduction shall not be allowed under any other section of the Income-tax Act, to avoid double deduction.
Application for approval of eligible projects has to be made in duplicate to the secretary to the National Committee for Promotion of Social and Economic Welfare, Department of Revenue, Government of India, North Block, New Delhi 110001.
Eligible Projects or Schemes:
The projects or schemes prescribed by Rule 11K relate to the provisions of one or more of the following:
(a) construction and maintenance of drinking water projects in rural areas and in urban slums including installation of pump sets, digging of wells, tube-wells and laying of pipes for the supply of drinking water;
(b) construction of dwelling units for the economically weaker sections;
(c) construction of school buildings primarily for children belonging to the economically weaker sections of the society;
(d) establishment and running of non-conventional and renewable source of energy systems;
(e) construction and maintenance of bridges, public highways, and other roads;
(f) any other program for the uplift of the rural poor or the urban slum-dwellers, as the National Committee may consider fit for support;
(g) promotion of sports;
(h) pollution control;
(i) establishment and running of educational institutions in rural areas, exclusively for women and children up to 12 years of age;
(j) establishment and running of the hospital and medical facilities in rural areas, exclusively for women and children up to 12 years of age;
(k) establishment and running of crèches and schools for the children of workers employed in factories or at building sites;
(l) encouraging the production of bacteria-induced fertilizers;
(m) any program that promotes road safety, prevention of accidents and traffic awareness;
(n) construction of hostel accommodation for women or handicapped individuals or individuals who are of the age of sixty-five years or more;
(o) establishment and running of institutions for vocational education and training in rural areas or towns which consist of a population of fewer than five lakhs.
The National Committee has to satisfy itself that the benefit shall flow to the public in general or to the individuals belonging to economically weaker sections of the society and that the applicant has the necessary expertise, personal and other facilities and shall maintain separate accounts in respect of the eligible project or scheme. Requirements of rules 11J, 11K, and 11L have to be fulfilled. The procedure has been prescribed in rule 11M of the Rules. Such deduction is allowed under section 80GGA of the Income-tax Act and at 100 percent of the donation irrespective of income.
The deduction is also allowable under section 80GGA in respect of scientific research association or to a university, college or other institutions to be used for scientific research or for research in social or statistical research approved under section 35(1) (ii) or (iii) of the Income-tax Act, for a programme of rural development approved under section 35CCC; for construction of natural resources or for afforestation approved under section 35CCA, etc.
AMENDMENTS BY THE TAXATION LAWS (AMENDMENT) ACT, 2006
Explanations are added to sections 35, 35AC, 35CCA and 80GGA to the effect that the deduction to which the assessee is entitled in respect of any sum paid to a scientific research association, university, college or other institution shall not be denied merely on the ground that, subsequent to the payment of such sum by the assessee, the approval granted to the association, university, college or other institution has been withdrawn.
In section 35AC of the Income-tax Act, after sub-section (2), an explanation has been inserted with effect from the 1st day of April 2006 that the deduction, to which the assessee is entitled in respect of any sum paid to a public sector company or a local authority or to an association or institution for carrying out the eligible project or scheme referred to in this section applies, shall not be denied merely on the ground that subsequent to the payment of such sum by the assessee:
(a) The approval granted to such association or institution has been withdrawn; or
(b) The notification notifying eligible projects or schemes carried out by the public sector company or local authority or association or institution has been withdrawn.
A similar explanation has been added to sections 35, 35CCA, and 80GGA.