Dear Members,
SKG Sangha is an NGO working in the fields of sustainable energy, sustainable agriculture and waste management. As party of our projects, a software company has come forward to fund one of our energy projects. Whereas the company wants to give us the funds as a contractor. Once the funding company the NGO as a contractor for implementing the development project they have to deduct TDS. What are the tax matters involved in such a case?
Regards,
Vidya Sagar Devabhaktuni
President, SKG Sangha
#532, 2nd Main Road, Gandhi Nagar,
KOLAR – 563 101
Karnataka State, INDIA
While there is no general exemption to NGOs from deduction of TDS and if the deductor (person deducting TDS) decides to deduct TDS, little NGO (deductee) can do. However one suggestion is that the concerned NGO could apply to Income Tax authorities for issuing an exemption certificate under S. 197A. Generally this certificate is issued from year to year and often to specific persons.
However this could help you avoid deduction of TDS, if the IT authorities are convinced that you are not likely to have income subject to Income Tax in that FY.
rgds
As Ravi Prakash Sha’s statement that intent of contract is important but if our funder is deducting 2% TDS it means it consider us (NGO) a contractor where intent will be considered or it just ruled over because they (IT Dep.) have proof of 2% deduction.
The Drafting of the agreement has to be examined to ascertain the real intent of funding.Whether it has been granted as a pure contactor or as a funding for a Charitable Project. if it is really of commercial nature than the benefit of Sec11 will not be available.Further if the receipts on this account in a year is more than 25 lacs than the proviso to Sec 2 (15) will also be attracted.So the intent of the contract is important
Ravi Sah
Can you help us in getting the case studies and verdicts in favour of the NGOs in several High Courts and Supreme Court in India, when 2% or 10% TDS is being deducted for an NGO registered under 12AA.
Dear Vidya Sagar,
If the funds are being provided to you as a contractor, that means a TDS @ 2% will be deducted from the amount agreed towards the implementation of the project. This will be reflected in your Form 26AS and you will have to claim the refund from the IT dept at the time of filing the ITR. Also, getting funds in the form of contractor will not necessarily construe the activity as commercial in nature. This issue may come up in case you organization is under scrutiny from the IT dept. There are many case studies and verdicts in favour of the NGOs in several High Courts and Supreme Court in India.
Importantly, since TDS will be deducted, your organization may receive only 98% of the funds as against the project proposal funding of 100%. The 2% will have to be made up by you and possibly be adjusted against the IT refund as and when it is remitted to your organization.
Thanks and regards,
B V Soma Sastry