TAXABILITY OF CHARITABLE ORGANISATIONS
What’s charitable organisation?
A charitable organisation is which has for its objects the benefit of the public or of mankind. It may be formed as a society, trust, company holding a licence or as an association. Such organisations derive income by way of donations, members contribution, income from property held by them. These organisations are thus taxable of their income and are assessable in the status of Association of Persons.
Income of an Organisation includes:
1) Subscriptions from the members.
2) Donations and voluntary contributions.
3) Income from property held under the trust.
4) Capital gain on transfer of property held under the trust.
5) Income from any business carried on by the organisation which is incidental to the attainment of its objects.
Section 11 of the Income tax Act lay down that any income or profit derived from property held under the organisation (wholly or partly) shall not be included in the income of the organisation.
Organisations exempted under the Act:
1) Organisations created before 1.4.1962 for charitable and religious purposes and applying their income to such purposes in India.
2) Organisations created before 1.4.1952 for charitable or religious purposes, by a special order of the board, and applying their income to such purposes outside India.
3) Organisations created on or after 1.4.1952 for charitable or religious purpose of promoting international welfare in which India is interested, authorised by a special board, and applying their income to such purposes outside India.
4) Organisations created for the benefit of scheduled castes, tribes, backward classes or women or children.
Organisations not entitled to exemption under section 11 and 12 of the Income Tax Act:
1) An organisation for private religious purposes.
2) An organisation created or established on or after 1.4.1962 for the benefit of any particular religious community or caste (other than scheduled caste/tribes, backward classes or women or kids.
3) An organisation or institution for charitable or religious purposes, if any part of its income or property is directly or indirectly for the benefit of a specified person.
4) Any organisation or religious trust or institution, which holds any share in any company (other than shares in a public sector company).
Incomes entitled for exemption under section 11 and 12 of the Income Tax Act:
1) Income in the form of voluntary contributions.
2) Income derived from property held under the trust is exempted to the extent it is applied to charitable or religious purposes.
3) Income being profits and gains of a business which is incidental to the attainment of the objects of the trust.
4) Income being capital gains arising on transfer of a capital asset.
According to Section 2(15) of the Income Tax Act, Charitable purpose includes:
1) Relief of the poor.
2) Education.
3) Medical relief and
4) Advancement of any other object of general public utility.
‘Advancement of any other object of general public utility’ won’t be considered as charitable purpose if it involves carrying on of activity in nature of trade, commerce, or business for any fee, cess or other consideration. If any such activity is carried on by a trust or organisation it won’t be entitled to exemption under section 11 of the Income Tax Act and its income will be chargeable to tax even if utilised for charity.