Recently it was reported in national news papers that as per data provided by CBI to Supreme Court, there are two NGOs’ for every policeman in the county. However out of the 30 lakh NGO’s operating, not even 10% have filed accounts statement with Registrar of Societies which is mandatory. The situation in Goa is no different.
For the purpose of Income Tax, NGO covers all charitable and religious institutions like temples, churches etc and organizations in the field of education, art, culture, environment etc.
It is estimated that there are over 4,000 NGOs (Non Government Organizations) also known as NPOs (Non Profit Organizations) in Goa operating in different fields.
There is general misconception that since NGOs’ are working for the benefit of public without any profit motive, they are immune from taxation and other regulatory requirements.
Barring a few professionally managed NGOs there is unawareness and ignorance about various legal obligations that are required to be complied with under Societies Registration Act, Income Tax Act, Service Tax Act, Vat Act, Foreign Contribution Regulation Act, etc. This lack of compliance can put NGOs into serious trouble. Fortunately, there is no Charity Commissioner in Goa as in other States and presently they are not also on the radar of Income Tax department.
To get exemption from Income tax certain conditions are mandatorily required to be fulfilled. The NGO should either be constituted as Public Charitable Trust or as a Society under Societies Registration Act or as a company under section 8 of new Companies Act 2013. A One man NGO or NGO of a group without constitution are ineligible for exemption.
Secondly the objects of the NGO should fit into the definition of ‘Charitable Purpose’ as defined in section 2(15) of the Income Tax Act, which covers relief of the poor, education, medical relief, promotion of science, literature, education, sports, environment etc.
NGOs are covered under section 11, 12, 12A, 12AA, 13 of the Income tax Act. Special provisions exist in section 10 for exemption of institutions existing solely for educational and medical purposes substantially financed by Government and where aggregate annual receipts do not exceed Rs 1 crore.
To get exemption, the organizations must register with Commissioner of Income Tax u/s 12A of the Act and every financial year, should utilize 85% of the Income on objects of the organization. Subject to certain conditions relaxation is available for utilization of income in subsequent five financial years. No part of the Income or property can be applied directly or indirectly for benefit of founders, trustees, or members of managing committee. There are also restrictions on investments made u/s 11(5) of the Act.
Anonymous donations received by any organization other than religious in excess of 5% of total donations or Rs one lakh, where identity of the party is unknown, are taxable at highest rate of 30% u/s 115BBC. NGO’s are liable for audit if their income exceeds Rs 2.5 lakh. Tax returns in ITR 7 are required to be filed online by September 30 of every year in audit cases otherwise due date is July 31. They are also subject to all other obligation as are applicable to any other tax payer regarding TDS, Advance tax etc.
Most of the services provided by NGO’s are liable for service tax at 14% if gross value of services in a financial year exceeds Rs 10 Lakhs. Exemption is available for certain charitable activities of organizations registered u/s 12A of IT Act. Organizations dealing in goods attract vat liability and if they hire hall or open spaces are liable for Goa luxury tax.
Every society registered under Societies Registration Act is required to renew its registration certificate every 5 years, otherwise the Society is treated as defunct.
An NGO cannot accept any donation either in cash or in kind from any foreign source including foreign citizens of Indian origin (PIO) or registered overseas citizen of India (OCI) unless registered with Ministry of Home Affairs, New Delhi.
It is advisable for office bearers of NGOs to know where exactly they stand in terms of maintenance of proper day to day accounts and carrying out timely legal compliances to get public trust and avoid trouble with authorities.
