What is Penal taxation?
Penal Taxation, Section 14 and five heads of income are not applicable to NGO: To compute the income of NGO it has to be done only by sections 11 to 13. and the other provisions of the Act are under this situation not admissible. In fact, in the case of charitable or religious ones in particular, the income subject to tax is not calculated at all. What is computed is the income of exemptions, under and 11 and 12. This in a nutshell is the difference between an ordinary assesse and an exempt institution; thus, the tax liability is more or less in the nature of a penalty. This is clear from section 11(1)(a) which points to the fact that income received from property used solely for charitable and religious purposes for which the trust was created excluding the extent to which it is used for the said purpose in India. Once properties of this nature are completely stripped of their income, there can be no question of arriving at the income from the property under section 14 and all such income will be taxable under the said sections 11 to 13.
It is to be appreciated here that sections 11 to 13 compose separate and self-contained code to deal with the tax liability of Charitable and Religious Institutions. For non-compliance, it presents multiple scenarios that lead to noncompliance and the consequence of the non-compliance for stating that such incomes shall not be subject to application and/or the benefit of section 11 and 12 is being withdrawn or the registration status is lost for that particular year the person was noncompliant.
The following are the subject to penal tax: circumstances that the following provisions of the asset management manual do not conform to:
(a) Other income not earned in INDIA (b) net profit of the Business/Profession Income not earned in INDIA [Not covered under section 11(1)(c).
(b) Income under Section 11(1B): where an organization after ascertaining the amount to be applied under Section 11(1), fails to apply any income referred in the application as deemed to have been applied by filing of Form 9-A.
(c) Section (c) / 11(3): This is the income that an organization is supposed to apply within a year after it has filed Form 10 and accumulated it for such a purpose.
(d) Where any Medical services or Educational service has been rendered to any Interested persons and the same has not been agreed by the Medical or Educational institution or the Interested persons as a free service, then the same shall be payable by such Interested persons to the respective Medical or Educational institution as per Section 12(2).
(e) Violation of conditions specified under section 12A(1)
(i) Non-filing of Income-tax Return
(ii) Non-obtaining & furnishing of Audit Report
(iii) Non-maintenance of books of account as prescribed under Rule 17AA (w.e.f. Assessment Year 2023-24).
(iv) Non – applying for renewal of Registration or for making the provisional Registration into a normal registration.
(f) Not applying for Re-registration for confirming the modification of the object clause.
(g) Violation of section 13(1).
(i) Income applied for the private religious purpose [Section 13(1) (a)]
(ii) Income applied for particular religious community or caste [Section 13(1)(b).
(iii) Benefit to interested person [Section 13(1)(c)]
(iv) Investment of funds in an unspecified manner [Section 13(1) (d)].
(h) Incidental business activity in excess of 20% of gross receipt [Section 13(8)].
(i) Anonymous donations in excess of the exemption limit [Section 13(7)].
(j) Violation of the conditions of Explanation 3A to Section 11(1) [Explanation 3B to section 11(1)].
(k) Shortfall in applying 85% of Income.
(l) Income chargeable under section 11(4).
IMPLICATIONS OF VARIOUS NON-COMPLIANCES
√The implication of non-compliances can be summarized in the following categories:
- Income which causes tax effect on account of specific non-compliance’s outlined under section 115BBI shall be taxed @ 30%. (Introduced under the Finance Act, 2022 which came into force from the Assessment Year 2023-24).
- The remaining income will be subject to tax because the organisation was found to have non-compliances in its income under Section 10 (10) of the Income Tax Act : (b) If any of the income is liable to tax in accordance be cause of non london Young as Association of persons. Before the Finance Act, 2022 the amount received as income under sections 13(1)(c) & 13(1) (d) was liable to tax at the maximum marginal rate as provided under section 164(2) however w. e. f the assessment year 2023-24 the entire income arising from such transactions will be taxable @ 30 per cent under section 115BBI.
- Regarding section 13(10) read with section 164(2), income available this and the following years would be its total income: (c) When benefits pertaining to section 11 and section 12 are to be withdrawn for a specific purpose, the amount shall be taxed under Section 13(10).
- Registered organizations: If registration has not been renewed or has not been applied for, the organizations becomes liable to tax as an normal assesse and income shall be calculable under five heads of income.
- This further states that any anonymous donation received under section 115BBC is taxed at 30% without any deduction or set off under any head. (Please refer to the Chapter on Anonymous Donations as well.
- It consist of sections 115TD, 115TE and 115TF which taxes the ‘accreted income’ of an organisation registered under section 12AA/12AB of the Income-tax Act in certain circumstances. Addition to these chapters, Chapter XIII-EB contains of sections 115VD and 115YD which taxes the ‘accumulated sales tax credit’ of a company. As for the specified situation, the following options are within its framework: Cancellation of Registration. However, it will be pertinent to also cite the Chapter on Tax on Accreted Income of NGOs).
DISCLAIMER: The information provided in this article is intended for general informational purposes only and is based on the latest guidelines and regulations. While we strive to ensure the accuracy and completeness of the information, it may not reflect the most current legal or regulatory changes. Taxpayers are advised to consult with a qualified tax professional or you may contact to our tax advisor team through call +91-9871990888 or info@semantictaxgen.in the appropriate government authority to verify the accuracy of the information and to obtain advice on their specific tax situations.