01 => Income tax was first introduced in India in 1860. In those days income related with charitable purposes were totally exempt from tax. Over the years the Income Tax Act underwent radical changes, basically to ensure that such exemptions are not misused by unscrupulous elements. Currently extensive exemptions are still available to NGOs but a host of regulatory provisions have been incorporated in the act, which are to be adhered to, in order to claim exemptions.
APPLICATION FOR REGISTRATION
02 => In order to claim exemption, an NGO should make an application to the Commissioner of Income Tax for registration of the NGO. Such application is to be made in Form 10A. The following documents are required to be submitted:
i) Form 10A
ii) The original instrument under which the NGO is established, or the Bye Laws & Memorandum of Association evidencing the creation of the NGO should be enclosed.
iii) Two copies of the Accounts of 3 previous years should be enclosed. Where the NGO was not in existence in any of three prior years, copies of the accounts of lesser No. of years may be submitted.
TIME LIMIT FOR MAKING AN APPLICATION
03 => Provisions prior to 1st June 2007
Prior to the changes made by Finance Act 2007, the application for registration by an organization should have been made before expiry of one year from the date of creation of an organization. Organisation which made delayed application was allowed exemption with effect from the 1st day of the previous year in which application is made. The Commissioner of Income Tax had power to condone the delay in filing application.
04 => Provisions after to 1st June 2007
The above provisions were amended by the Finance Act 2007. According to the amendment, the power of the Commissioner of Income Tax (CIT) to condone the delay has been withdrawn w.e.f. 1st June 2007.
05 => Implications of the above amendment
Any delay in the filing of application for registration by the organisations cannot be condoned by the CIT. The exemption shall be given from the 1st day of the previous year in which the application was made and if the organisation has any income in the previous years prior to filing the application, shall be subject to tax. Thus the onus of availing exemption of Income from the Income Tax Department lies on the organisation itself.
THE AUTHORITY TO WHOM APPLICATION IS TO BE MADE
06 => The application is to be submitted Income Tax –
Registration Procedure to the Commissioner of Income Tax in whose area the NGO is located. However, in respect of the four metropolitan cities of Calcutta, Chennai, Delhi & Mumbai, the applications are to be made to the Director of Income Tax (Exemption).
GRANTING & REFUSAL
07 => The Commissioner of Income Tax, on receipt of an application for registration of an NGO, shall call for such documents or information, as he thinks necessary. While processing such application, the concerned authority normally concentrates on the genuineness of the NGO. Once the genuineness of the activities & creation is established, then it is incumbent upon the authority to pass an order in writing, registering the NGO.
OPPORTUNITY OF BEING HEARD
08 => The Commissioner of Income Tax has the power to reject an application for registration. It may be noted that such powers cannot be used arbitrarily without substantiating adequate reasons for such rejection. Under the current laws it is statutorily required that, an opportunity of being heard should be provided to the applicant, before rejection of any application.
CAN WE APPEAL AGAINST REJECTION
09 => Under the provisions of Section 253 of the Income Tax Act an appeal can be made to the Income Tax Appellate Tribunal against an order rejecting the application for registration. Under such circumstances if an NGO sincerely believes that an unjust order has been awarded against it, then it can file an appeal.
TIME LIMIT FOR PASSING THE ORDER
10 => Under income tax laws the order for either granting or refusing registration shall have to be passed within six months from the end of the month in which the application was made.
WHAT IF NO ORDER IS PASSED WITHIN THE TIME LIMIT
11 => Here it is worthwhile to note that, both FCRA and Income Tax laws in India are vague and ambiguous in this regard. Ironically it has been clearly mentioned in the Income Tax Act that an order has to be passed within 6 months but nothing has been mentioned about the fate of the application if it is not cleared within 6 months. Some sort of amendment is required in this regard. A deeming provision for automatic registration may not be a bad idea. Under FCRA Laws if an NGO applies for prior permission to receive Foreign Funds and if the application is not processed within 90 days, the application is deemed to have been automatically granted. But as far as registration is concerned both Income Tax Act & FCRA are silent.
CAN REGISTRATION ONCE GRANTED BE CANCELLED
12 => The Finance Act, 2004 has inserted a new sub-section to section 12AA. By virtue of this newly inserted sub-section 3, the Commissioner with effect from 1st day of October, 2004 shall have the power to cancel the registration, if he or she is satisfied that the activities of such trust/institution are not genuine or are not being carried out in accordance with the objects of the Trust or Institution. Before such cancellation, the Commissioner has to provide a reasonable opportunity of being heard and an order in writing has to be passed for such cancellation.
CONDONATION OF DELAY
13 => The application for registration should be made within one year from the date of creation of Trust. If application is filed after the period as said, then the Chief Commissioner or Commissioner can condone the delay after satisfying himself that sufficient reasons exist for delay. If condonation of delay has not been granted by the Commissioner, then the Trust or Institution would be eligible for exemption from the first day of the financial year in which the application is filed.
14 => The power empowering the authority concerned to condone the delay, in case of Trust or Institution who makes an application before the expiry of one year from the date of creation of the Trust or the establishment of the Institution, whichever is later, still remains as it was before, as such authority concerned have power under the circumstances to condone the delay, after satisfying the reasons for delay and for reasons recorded in writing.
REGISTRATION OF NGOs OF NATIONAL IMPORTANCE
15 => Government of India notifies few NGO's in the official gazette each year. Such notified NGO's are totally exempted from tax even if they are not registered under section 11 of the Income Tax Act. All NGO's are open to apply for this recognition. Currently, the Central Government has exempted various organisations including universities, sport institutions, medical institutions, NGO's etc, under these provisions. An NGO can apply for such exemptions under section 10(23)(c)(iv).
16 => In order to claim exemption; an application in Form No. 56 is to be submitted to the Director General (Income Tax Exemption), Calcutta through the Commissioner of Income-Tax having jurisdiction over the Trust or Institution in four copies along with the following documents:
a) Copies of the Deed of Trust/Rules and Regulations/Memorandum and Articles of Association;
b) A List of Members of the Governing Council / Body;
c) Photocopies of the latest certificate under Section 80G issued by the Commissioner of Income Tax, if applicable;
d) photo-copies of the assessment orders passed for the last three year (or to the extent applicable)
e) Photocopy of communication from the Commissioner of Income Tax with reference to the application of the Fund/Trust/Institution for registration.
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