Under the Income Tax Act of India, Sections 11 and 12 provide tax exemptions for certain types of income earned by non-profit organizations, including NGOs (Non-Governmental Organizations). These provisions are aimed at promoting philanthropy and supporting charitable activities by granting tax benefits to organizations engaged in specific social, educational, religious, or other charitable purposes. Here’s an explanation of the tax exemption under Sections 11 and 12 of the Income Tax Act for NGOs:-
Section 11 – Income from Property Held for Charitable or Religious Purposes
Section 11 of the Income Tax Act grants tax exemption to income derived from property held under trust or other legal obligation exclusively for charitable or religious purposes. This includes income generated from the ownership or use of property such as buildings, land, investments, or assets dedicated to charitable activities by the NGO.
Key Points
- The property must be held for charitable or religious purposes, and income generated from such property must be applied towards the fulfillment of the organization’s objectives.
- Income derived from business activities carried out by the NGO, if incidental to the main charitable objectives, may also qualify for tax exemption under Section 11.
- Certain conditions and limitations apply, including restrictions on accumulation of income, utilization of funds for non-charitable purposes, and compliance with statutory requirements for maintaining books of accounts and filing annual returns.
Section 12 – Income of Trusts or Institutions from Contributions
Section 12 of the Income Tax Act provides tax exemption to income received by trusts or institutions established for charitable purposes from voluntary contributions made with a specific direction that they shall form part of the corpus of the trust or institution.
Key Points
- Income received in the form of voluntary contributions with a specific direction that they shall form part of the trust or institution’s corpus is exempt from tax under Section 12.
- Contributions received for specific charitable projects or activities may also qualify for tax exemption under Section 12, provided they are utilized for the specified purposes in accordance with the donor’s wishes.
- Conditions related to utilization of funds, maintenance of accounts, and compliance with statutory requirements apply to avail tax exemption under Section 12.
It’s important to note that while Sections 11 and 12 provide tax exemptions for certain types of income earned by NGOs, they also impose various conditions, limitations, and compliance requirements to ensure that tax benefits are granted only to organizations genuinely engaged in charitable activities and fulfilling their stated objectives. NGOs seeking tax exemption under these provisions must adhere to the prescribed regulations, maintain proper records, and fulfill their obligations as per the Income Tax Act and related rules and guidelines. Additionally, the tax exemption provisions may be subject to amendments, revisions, or interpretations by the tax authorities or legislative changes over time, requiring NGOs to stay updated and compliant with the prevailing tax laws and regulations.
Note: Please see the latest update on department’s official website before making any decision.
