We are a registered public charitable trust setup with the intent of starting an orphanage for the benefit of poor orphans. We have applied for 12A exemption but IT dept wants us to change certain clauses in our Trust which may take some time. My question is should the Trust have to pay income tax on the donations it received? We have spent all of the donations on purchase of land etc. The total amount of donation received and spent was around Rs 17 lacs,
Dear Sir,
Any donation received before approval under Section 12A shall be subject to tax at maximum rate. However sanction shall be granted from the date of application only
Spending of money shall not make any difference on taxability. However on a special request commissioner exemption may grant benefit of non taxability if they found the case to be genuine.
Dear Sir,
Donation recived after getting the exemption u/s 12A will not be liable for tax. However, anonymous donation will be liable for tax.
Please feel free to call/ revert in case of any doubts
Thanks and Regards
Abhishek Dugar
CA CS B.Com
As per our view If you have taken certificate/ registered in 12A then it will be exempt or else no.
The voluntary contributions received will be charged to tax, if the trust is not registered u/s 12A.
In one of my client's case, the software used by me did not show any tax liability in respect of such voluntary contributions. Even the utility provided by the IT dept did not show any tax liability in respect of such voluntary contributions. However, tax was levied at 30% on such income by the CPC. The tax is disputed and trying to resolve the issue through rectification mode.
The Trust applied for 12A, However IT dept is asking us to rephrase a few clauses in the Trust doc. Since we have to re register and one of the Trustees is outside India, we can't do this until Aug this year. Would IT dept waive any taxes on the donations since they were entirely used for the Orphanage? The donations received by the Trust (all donations made only by the Trustee - not public). I understand the worst case is the Trust may have to pay 30% tax on the donations received. Would the tax be credited after the Trust gets 12A approved?
Sir,
Generally the permission is granted from date of application only even though amendment carried out in the deed in between.
So in your case also if the amendment are in continuance with the earlier application than benefit of tax exemption shall be granted from the initial date of application only and hence no need to worry.
However if exemption is not granted from the first date than donation received by you shall attract tax liability @ 33.99% on all donations received.
Generally commissioner do grant relief initially only so tax liability do not arise.
As per our view since it is not registered you will not get exemption.
If one of the trustees constructs a building for the orphanage on the land owned by the Trust, would there be any problem from the IT department? Would the Trust have to pay tax on the cost of the building? Since one of the Trustees is outside the country and all Trustees are required for amending the Trust doc, this will not happen till the end of the year. So, instead of waiting till end of the year, can one of the Trustees construct a building for the orphanage with his own funds on the land which is registered under the Trust?