Taxation of charitable organization

Dear Sir/Ma`am

I have come to known this email id through one of my friend.

Sir/Ma`am can i request you to provide your expert opinion for below mentioned query??

“As per Income Tax Act , Section 29 – 43 are only applicable to the income computed under section 28 i.e. Income from Profit & Gain from Business”

In such a case whether Assessing Officer has power to disallow the following expenditure of a charitable organisation and Tax the same amount:-

1. Expenditure Paid without deducting TDS ( As required under Section 192 – 194)
2. Expenditure Paid in cash in excess of 20,000 in single payment
3. Prior Period Expenses

I will be highly obliged if you can respond to my queries.

Deepak Singh

This entry was posted in FCRA, TAX, LEGAL. Bookmark the permalink.

One Response to Taxation of charitable organization

  1. Expert Panel says:

    The question raised is very relevant to NGOs regarding their Tax status. All NGOs have to file their Income Tax return in Form ITR 7, wherein an amount of ‘Application of Income’ is to be calculated and claimed as per S.11 – S. 13. Sections 28 – 44DB (Chapter IV) are for calculation of Income from business or profession. Thus the scope of the sections is very different. Disallowance of expenditure under S. 28 for non-deduction of TDS, cash payments or prior period expenses are not applicable in case of NGOs, since they calculate Application of Income and not business income (assumption is that the NGOs being discussed do not have any business income). Thus if S. 28 is not applicable in case of NGOs, then there is no question of disallowing expenditures. This view was also held by ITAT Mumbai in a similar situation [Mahatma Gandhi Seva Mandir vs Deputy Director of Income Tax (Exemption)].

    However, an NGO must keep in mind provisions of s. 271C, which impose penalties for non-deduction of TDS, and are applicable to all type of assessee. Since these are penalties for non-compliance and not disallowance, ITO could invoke these penalties for non-compliance of TDS provisions.

Comments are closed.