Trust Registration Under Income Tax Act

Income Tax
Income Tax - Registration Procedure
Application for Registration of Income Tax
In order to claim any exemption, an NGO should make an application u/s 12A to the Commissioner of Income Tax of concerned district for registration of the NGO. Such application is to be made in Form 10A (given below). The following documents are required to be submitted:
i) Form 10A (The application for registration by an organization should have been made before expiry of one year from the date of creation of an organization).
ii) NGO registration certificate under which the organization is established and the Bye Laws & Memorandum of Association

iii) Two copies of 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.
Implications of delay in making application
Any delay in the filing of application for registration by the organizations cannot be ignored by the Commissioner of Income Tax. The exemption shall be given from the 1st day of the previous year in which the application was made and if the organization 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 organization itself.
The Authority to whom Application Is to Be Made
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 Kolkata, Chennai, Delhi & Mumbai, the applications are to be made to the Director of Income Tax (Exemption).
Granting & Refusal is possible in following case
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.
Tax exemptions structure of NGOs
Charitable Purpose Eligible for Tax Exemptions
As per the Sec 2 (15), Charitable Purpose is four types of activities such as (1) Relief of the poor (2) Formal education (3) Medical relief (4) Any other object of general public utility. These are called as four limbs of charitable purpose as follows.
Relief of the poor
Any Activity which directly helps poor such as food, shelter, clothing, emergency help etc fall under this category. The activities must be targeted towards the economic situation of poor communities.
Education
The word education includes mainly formal schooling or training. Coaching institutions are not allowed in the said term. However, education need not be given only to the poor. Also, it does not have to be provided free of charge or at lower costs.
Medical Relief
This covers the establishment of hospitals etc to cater to the needs of the ill. Once again, the hospitals need not cater to the poor alone or at reduced rate. However, in practice, a charitable disposition towards the needy is normally expected.
General Public Utility
It includes any activity which is seen a useful and worthy of promotion by the society. A large number of modern NGOs which are engaged in research & advocacy, empowerment, social justice and other civil society initiatives get the exemption under this fourth limb.
No Tax for Charities
Under the Income Tax Act 1961 (I T Act), charitable organizations (whether trust, society and section 25 of the company) in India are not liable to any income tax, provided certain conditions required under law are fulfilled. As per the section 11(1) (a) to (c) as well as 10(23C) of I T Act the term NPO includes religious organizations such as temples, churches, mosques etc and charitable organizations such as educational institutes, hospitals, NGOs etc. Organization may qualify for tax - exempt status if the following conditions are met:
A. At least 85% of the income derived from property held under trust, should be applied to charitable or religious purposes in the relevant previous financial year in order to claim full tax exemption. Property of trust also includes a business undertaking held under trust. U/s 10 (23C) (iv) or (v) The application for exemption has to be made by charitable and religious organization in the prescribed form No 56 (given below)
B. Surplus income for which an application has to be made in Form No. 10 (given below) may be accumulated for specific projects for a period ranging from 1 to 5 years;
C. The property should be held under trust wholly for charitable or religious purposes.
D. No part of the income or property of the organization may be used or applied directly or indirectly for the benefit of the founder, trustee, relative of the founder or trustee or a person who has contributed in excess of Rs. 50,000 to the organization in respective financial year;
E. The organization must timely file its annual income return, immediately after the expiry of each financial year.
F. The income must be applied or accumulated in India. However, trust income may be applied outside India to promote international causes in which India has an interest, without being subject to income tax.
G. Income from such property should be applied to charitable or religious purposes. (Exemption is available to the extent of such application)
H. The assesses is to apply for registration in Form No. 10A (given below) in duplicate before the expiry of 1 year from the creation of trust.
I. The funds of the organization must be deposited as specified in section 11(5) of the income tax Act
o Investment in Government Savings Certificates and any other securities or certificates issued by the Central Govt. under the Small Savings Scheme;
o Deposit in any account with the Post Office Savings Bank Account;
o Deposits in any account with any scheduled bank or a co-operative society engaged in carrying on the banking business (including a co-operative land mortgage bank or a co-operative land development bank);
o Investment in units of the Unit Trust of India
o Investment in any security for money created and issued by the Central Govt. or a State Govt.
o Investment in debentures of any company or corporation, the principal whereof and the interest whereon are guaranteed by the Central or State Government.
o Investment or deposit in any public sector company.
o Deposit with or investment in any bonds issued by a Central Government approved financial corporation engaged in providing long-term finance for industrial development in India.
o Deposits with or investments in any bonds issued by any Central Government approved public Company formed and registered in India with the main object of carrying on the business of providing long-term finance for construction or purchase of houses.