Significant Modifications in Taxation and Regulatory Framework for Nonprofit Organizations

The central government has made a number of significant changes to the tax and regulatory framework for nonprofit organizations in India in recent years, resulting in a significant overhaul of the system.

Recent Revisions to the Income Tax Act: Key Changes

Five-Year Renewal Cycle

Every five years, nonprofit organizations must apply for a renewal of their registration in order to claim an exemption from income taxes and to issue 80G donation receipts.

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In the past, nonprofit organizations had to register for income exemption and to issue 80G donation receipts for the duration of their existence, or until they were revoked. These registrations are now only good for five years, and in order to renew them, a request for a new registration must be sent at least six months before the original registration expires.

Form 10B & 10BB

Form 10B and Form 10BB, which apply from Financial Year (FY) 2022–2023 onward, must be included with the audit report.

The tax regulatory agencies have recently sent out notices regarding updated and comprehensive audit report formats that nonprofit auditors must provide on Forms 10B and 10BB. The following describes whether Forms 10B and 10BB are applicable:

Form 10B

(I) The total income of such trust or institution, without giving effect to the provisions of sections 11 and 12 of the Act, exceeds Rs. 5 crores during the previous year; or

(II) Such trust or institution which has received any foreign contribution during the previous year; or

(III) Such trust or institution which has applied any part of its income outside India during the previous year.

Form 10BB

In other cases.

The new audit reports also require a detailed level of disclosures as compared to earlier version of the audit reports.

Other charitable entities

Tax status of donations made to other charitable organizations (effective starting in FY 2023–2024):

Only 85% of the permissible gifts made by a trust or institution registered under section 12AA/12AB to another trust registered under section 12AA/12AB shall be recognized as an application for the donor nonprofit entity, according to a provision added by the Finance Act, 2023. This amendment was made in response to incidents that the Tax Department had seen in which certain charitable organizations attempted to circumvent the legislative intent by creating numerous trusts and earning 15% income at each level through internal donations.

 

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Corpus contributions

The mandatory requirement under Section 11(5) of the IT Act to invest the corpus contributions received in the following manner (effective FY 2021–2022).

Income received in the form of voluntary donations made with the express intent that they become part of the trust or institution’s corpus shall not be included in the trust or institution’s total income, according to Section 11(1)(d) of the IT Act.

According to the Finance Act 2021, these voluntary contributions must be invested or deposited in one or more of the ways listed in section 11 subsection (5) that are kept expressly for such a corpus in order to be eligible for this exemption.

Form 10BD & 10BE

All gifts must be electronically reported on Form 10BD, and donors must get system-generated Form 10BE donation receipts (effective FY 2021–2022).

Nonprofit organizations are now required to file a report on receipt of all types of donations during a specific financial year in Form No. 10BD. This report must be filed on or before May 31 of the immediately following financial year in which the donation is received. This requirement is similar to filing TDS Returns and issuing system-generated TDS certificates.

Additionally, the donee must provide the donor with a donation receipt on a Form 10BE created by the system. The donor must present a legitimate system-generated donation receipt in Form 10BE in order to be eligible for the deduction under Section 80G of the IT Act.

Early filing of Form 9A & 10

Form 9A and Form 10 filing deadlines have been postponed by two months (starting in FY 2022–2023):

Form No. 10 or Form No. 9A, respectively, must be filed by trusts and institutions that choose to stockpile their revenue for future application purposes or opt for presumed applications. The deadline for submitting these forms has been postponed by two months starting in FY 2022–2023. These documents must now be submitted at least two months before August 31, 2023, which is the deadline for filing income returns.

Amendments to Foreign Contributions Regulation Act

Only after registering under the Foreign Contributions Regulation Act, 2010 (FCRA) or receiving prior authorization from the central government are charitable organizations permitted to collect contributions from overseas.

 

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Only bank accounts recognized by the Federal Communications Regulatory Authority (FCRA) at the State Bank of India’s New Delhi Main Branch (NDMB), 11 Sansad Marg, New Delhi 110001, are acceptable for overseas contributions to Indian registered nonprofit groups.

Read More: Revised ITR filing: Is there a penalty for filing a revised income tax return

When a foreign donation is received by a nonprofit registered organization, it must be used for its intended purposes; it cannot be donated to another nonprofit organization that is registered with the Federal Communications Commission.