I am often asked by readers or tax professionals about registering an NGO or trust or a society with the Income Tax Department exemption wing . The purpose is to get exemption under sec. 11 and sec. 12 of the Income Tax Act from tax . But ,the difficulty or confusion is on account of non filing of tax return by the trust or society or NGO in the past . Whether the tax department will raise question about non-filing or not grant registration on the basis of non-filing of tax return. This post is going to explain why in many cases , such notices are simply noting to worry about and that there was no need to panic as there may no be any need for either filing of tax return or even getting the accounts audited.
When filing of tax return necessary by a trust or society ?
The relevant provision of tax law is sec. 139(4A) regarding the filing of return by a charitable trust or society. First read the provision
(4A) Every person in receipt of income derived from property held under trust or other legal obligation wholly for charitable or religious purposes or in part only for such purposes, or of income being voluntary contributions referred to in sub-clause (iia) of clause (24) of section 2, shall, if the total income in respect of which he is assessable as a representative assessee (the total income for this purpose being computed under this Act without giving effect to the provisions of sections 11 and 12) exceeds the maximum amount which is not chargeable to income-tax, furnish a return of such income of the previous year in the prescribed form and verified in the prescribed manner and setting forth such other particulars as may be prescribed and all the provisions of this Act shall, so far as may be, apply as if it were a return required to be furnished under sub-section (1).
The aforesaid provision of law clearly says that a charitable trust/society/institution has to file income tax return if total income (computed before allowing any exemption u/s 11 and 12) exceeds the maximum amount not chargeable to tax.
Income computation of a trust registered u/s 12A is different ?
Since for knowing whether a charitable trust is required to file tax return , one need to compute the total income of trust without excluding the exemption claim u/s 11 & 12 . Now , in case of a charitable trust claiming exemption under Income Tax Act , it must be remembered that all kinds of receipts, whether capital or revenue nature are treated as income in the hands of a public trust or religious trust, except donations made with a written direction from the donor that the donation made shall be treated as part of the corpus of the trust. Such a donation to corpus shall not be included in the total income of a trust or institution.
What is corpus fund ?
The term “Corpus Fund” has not been defined in the Income Tax Act, 1961. It is the amount donated by a donor with a specific direction that it shall form part of the Corpus of the Trust or institution. The corpus is considered to be the capital of the trust or institution which should be kept intact. It may be utilised for the purchase of assets such as land, buildings, furniture, fittings, equipment etc. or it may be invested or deposited as per Section 11(5) of the Act, and the income arising therefrom may be utilised for the objects specified by the donor to the Corpus Fund.
So, once you found that the total income minus the corpus fund is below the exemption limit i.e the basic amount which is exempt from tax in case of Individual or AOP , in such case as per section 139(4A) , return of income is not required to be filed by the charitable trust or society or NGOs
What about Audit of Accounts by Charitable Trust or society ?
Same rule is applicable .
First thing to note that the audit of accounts of a trust/society is not regulated u/s 44AB , but section 12(2) of the Income Tax Act . Now, section 12A(2) of the Income Tax Act provides that if income of charitable trust , before applying exemption u/s 11 & 12 , is more than exemption limit, it has to get his accounts audited and submit along with the tax return .
Rule17B prescribe form 10B for the audit certificate.
Section 12A(b) is as under :
(b) where the total income of the trust or institution as computed under this Act without giving effect to the provisions of section 11 and section 12 exceeds the maximum amount which is not chargeable to income-tax in any previous year, the accounts of the trust or institution for that year have been audited by an accountant as defined in the Explanation below sub-section (2) of section 288 and the person in receipt of the income furnishes along with the return of income for the relevant assessment year the report of such audit in the prescribed form duly signed and verified by such accountant and setting forth such particulars as may be prescribed.
- If the total income minus corpus , before climing exemption u/s 11 or 12 crosses the basic limit up to which no tax is imposed under Income Tax Act, a trust or NGO or society need not file tax return.
- If the trust or society or NGO not required to file tax return, the auidt of accounts is also not mandatory.