Income Tax

When individuals are employed, they expect to be remunerated for their labor. One common form of compensation is a salary, which is the predetermined payment an employee receives for their services. However, in addition to salaries, employers may provide their workers with other benefits such as perquisites (commonly known as perks) and profits in lieu of salary. In this blog, we will define these terms and explore their function. Salary A salary is a fixed amount of money that an employer agrees to pay an employee for their work during a specific period, such as a week, month, or year. Usually, the salary is disbursed at prearranged intervals, such as weekly or monthly, and is determined by the employee’s skills, experience, and the market demand for their work. Perquisites (Perks) Perquisites, or perks, are supplementary benefits offered by employers to their employees in addition to their salary. Perks may include various items such as company cars, stock options, health insurance, or paid vacation time. The objective of providing these benefits is to enhance job satisfaction and retention by offering more than just a salary. Perks may be either taxable or non-taxable, depending on the nature of the perk. For example, an employer-provided car may be taxable, while an employer-paid gym membership may be non-taxable. Employers are required to report all taxable perks on their employees’ Form W-2, which shows their total taxable income for the year. Profits in Lieu of Salary Profits in lieu of salary are another type of compensation that employers may provide to their employees. This form of compensation is separate from an employee’s salary and is usually based on the company’s profits or earnings. For instance, at the end of the year, an employee may receive a bonus based on the company’s profits. Profits in lieu of salary are subject to federal income tax withholding and are also subject to Social Security and Medicare taxes. Conclusion Salary, perks, and profits in lieu of salary are all important components of an employee’s overall compensation package. Understanding these concepts is critical for both employers and employees. Employers must comprehend the tax implications of each type of compensation, while employees need to understand how their compensation is calculated and taxed. A fair and competitive compensation package is essential for retaining top talent and driving business success. section 17 of Income Tax Act, 1961 For the purposes of sections 15 and 16 and of this section,— (1)  “salary” includes—   (i)  wages; (ii)  any annuity or pension; (iii)  any gratuity; (iv)  any fees, commissions, perquisites or profits in lieu of or in addition to any salary or wages;  (v)  any advance of salary; (va) any payment received by an employee in respect of any period of leave not availed of by him; (vi)  the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under rule 6 of Part A of the Fourth Schedule; (vii) the aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of rule 11 of Part A of the Fourth Schedule of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax under sub-rule (4) thereof; and (viii) the contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme referred to in section 80CCD; 4(2) “perquisite” includes—  (i)  the value of rent-free accommodation provided to the assessee by his employer;  (ii)  the value of any concession in the matter of rent respecting any accommodation provided to the assessee by his employer; Explanation 1.—For the purposes of this sub-clause, concession in the matter of rent shall be deemed to have been provided if,— (a) in a case where an unfurnished accommodation is provided by any employer other than the Central Government or any State Government and— (i) the accommodation is owned by the employer, the value of the accommodation determined at the specified rate in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee; (ii) the accommodation is taken on lease or rent by the employer, the value of the accommodation being the actual amount of lease rental paid or payable by the employer or fifteen per cent of salary, whichever is lower, in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee; (b) in a case where a furnished accommodation is provided by the Central Government or any State Government, the licence fee determined by the Central Government or any State Government in respect of the accommodation in accordance with the rules framed by such Government as increased by the value of furniture and fixtures in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the aggregate of the rent recoverable from, or payable by, the assessee and any charges paid or payable for the furniture and fixtures by the assessee; (c) in a case where a furnished accommodation is provided by an employer other than the Central Government or any State Government and—  (i) the accommodation is owned by the employer, the value of the accommodation determined under sub-clause (i) of clause (a) as increased by the value of the furniture and fixtures in respect of the period during which the said accommodation was occupied by the assessee during the previous year, exceeds the rent recoverable from, or payable by, the assessee; (ii) the accommodation is taken on lease or rent by the employer, the value of the accommodation determined under sub-clause (ii) of clause (a) as increased by the value of the furniture and fixtures in respect of the period during which the

To calculate income tax, it’s essential for salaried individuals to be aware of the various deductions they can claim from their earnings. The Indian Income Tax Act, 1961 allows for several exemptions and deductions to reduce taxable income and ultimately lower the tax liability. Here are some of the most prevalent deductions that employees can claim. Standard Deduction The standard deduction is a fixed amount that all salaried individuals can claim, irrespective of actual expenses. In the fiscal year 2022-23, the standard deduction is Rs. 75,000. This deduction is intended to help employees cover expenses related to employment, such as transportation or uniforms. Professional Tax Professional tax is a levy imposed by state governments on individuals who earn a livelihood through employment or a profession. This tax is deductible from salary income, with a maximum deduction of Rs. 2,500. However, it’s worth noting that not all states impose professional tax. Employee’s Provident Fund (EPF) EPF is a retirement benefit scheme offered by most employers to their employees. Contributions made by the employee towards EPF are eligible for deduction under Section 80C of the Income Tax Act, 1961. The maximum amount that can be claimed as a deduction under this section is Rs. 1.5 lakh. National Pension System (NPS) NPS is a government-backed retirement savings scheme open to all Indian citizens aged 18 to 60. Contributions made by the employee towards NPS are eligible for deduction under Section 80CCD(1) of the Income Tax Act, 1961. The maximum amount that can be claimed as a deduction under this section is Rs. 2 lakh. Medical Insurance Premium Medical insurance premium paid by the employee for self, spouse, and dependent children is eligible for deduction under Section 80D of the Income Tax Act, 1961. The maximum amount that can be claimed as a deduction under this section is Rs. 25,000. For senior citizens (above 60 years), the maximum deduction that can be claimed is Rs. 50,000. Housing Loan Interest Interest paid on a housing loan taken for the purpose of buying, constructing, or repairing a residential property is eligible for deduction under Section 24 of the Income Tax Act, 1961. The maximum amount that can be claimed as a deduction under this section is Rs. 2 lakh. This deduction is only available for self-occupied properties. It’s crucial to understand and utilize these deductions to reduce tax liability and maximize savings. Employees are advised to seek the guidance of a tax expert or a financial advisor to make the most of these deductions and plan their finances accordingly. section 16 of Income Tax Act, 1961 The income chargeable under the head “Salaries” shall be computed after making the following deductions, namely :—  (i)  [***] (ia) a deduction of fifty thousand rupees or the amount of the salary, whichever is less; (ii) a deduction in respect of any allowance in the nature of an entertainment allowance specifically granted by an employer to the assessee who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees, whichever is less; (iii) a deduction of any sum paid by the assessee on account of a tax on employment within the meaning of clause (2) of article 276 of the Constitution, leviable by or under any law. Services of B K Goyal & Co LLP Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases | Income Escapement Cases | Search & Seizure | CIT Appeal | ITAT Appeal | Auditors | Internal Audit | Financial Audit | Process Audit | IEC Code | CA Certification | Income Tax Penalty Notice u/s 271(1)(c) | Income Tax Notice u/s 142(1) | Income Tax Notice u/s 144 |Income Tax Notice u/s 148 | Income Tax Demand Notice 

Salaries are an indispensable source of income for many individuals and are subject to taxation according to Section 15 of the Income Tax Act. This section lays out the various constituents of a salary and their associated tax implications. Section 17 of the Income Tax Act defines salary as any remuneration received by an individual for rendering services as an employee. The different components of a salary include basic salary, dearness allowance, house rent allowance, bonus, commission, and other allowances or perks. The basic salary is the fixed portion of the salary and forms a significant part of the total income. It is taxed at the usual rates applicable to the individual. All other salary components are calculated based on the basic salary. The dearness allowance is a percentage of the basic salary paid to employees to compensate for the increased cost of living. It is subject to tax at the regular rates applicable to the individual. The house rent allowance (HRA) is an allowance paid to employees to cover their rent expenses. It is typically a percentage of the basic salary and is tax-deductible based on specific conditions. The deduction for HRA is computed as the lower of the actual HRA received, 50% of the basic salary for those residing in metropolitan cities, or 40% of the basic salary for those living in non-metropolitan cities. Moreover, the deduction is calculated as the actual rent paid minus 10% of the basic salary. Bonus is an extra payment made to employees as a reward for their performance. It is usually paid yearly or bi-annually and is subject to tax at the standard rates applicable to the individual. Commission is a payment made to employees who work on a commission basis. It is generally a percentage of the sales generated by the employee and is taxed at the regular rates applicable to the individual. Other allowances and perquisites include any additional payments made to employees beyond their basic salary. These could be medical allowances, travel allowances, or similar payments. Such payments are also subject to tax at the regular rates applicable to the individual. To summarize, Section 15 of the Income Tax Act provides an exhaustive framework for taxing salaries. It is imperative for employees to comprehend the various components of their salary and their respective tax implications. This knowledge will enable individuals to manage their finances better and ensure compliance with tax laws in the country. section 15 of Income Tax Act, 1961 The following income shall be chargeable to income-tax under the head “Salaries”— (a)  any salary due from an employer or a former employer to an assessee in the previous year, whether paid or not; (b)  any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him; (c)  any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year. Explanation 1.—For the removal of doubts, it is hereby declared that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due. Explanation 2.—Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as “salary” for the purposes of this section. Services of B K Goyal & Co LLP Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases | Income Escapement Cases | Search & Seizure | CIT Appeal | ITAT Appeal | Auditors | Internal Audit | Financial Audit | Process Audit | IEC Code | CA Certification | Income Tax Penalty Notice u/s 271(1)(c) | Income Tax Notice u/s 142(1) | Income Tax Notice u/s 144 |Income Tax Notice u/s 148 | Income Tax Demand Notice 

The Income Tax Act implemented in 1961 mandates that certain types of income are not to be counted as a part of a taxpayer’s overall income. However, any expenses incurred in connection with such income can be considered for deduction while computing the taxable income. This article aims to discuss the expenses that can be claimed as a deduction with regards to income that is not included in the total income. Firstly, income earned through agriculture is exempted from income tax under Section 10(1) of the Income Tax Act. Nonetheless, expenses incurred in generating such income can be claimed as a deduction. These expenses may include the cost of seeds, fertilizers, labor, rent for land, repair and maintenance expenses of agricultural machinery, and so on. Secondly, dividends received from domestic companies are also exempt from income tax under Section 10(34) of the Income Tax Act. However, any expenses incurred in earning such income can be claimed as a deduction. For example, if an individual invests in shares and incurs brokerage fees or other expenses related to the investment, such expenses can be claimed as a deduction. Thirdly, long-term capital gains from the sale of listed equity shares or units of equity-oriented funds are exempt from income tax under Section 10(38) of the Income Tax Act. Nevertheless, expenses incurred in connection with such gains can be claimed as a deduction. For instance, if an individual incurs expenses on brokerage fees or other expenses related to the sale of shares or units, such expenses can be claimed as a deduction. Fourthly, the maturity proceeds of a life insurance policy are exempt from income tax under Section 10(10D) of the Income Tax Act. However, any expenses incurred in relation to the policy can be claimed as a deduction. For example, if an individual pays premiums for a life insurance policy, such premiums can be claimed as a deduction. Lastly, gifts received by an individual are exempt from income tax under Section 56(2)(x) of the Income Tax Act. Nonetheless, any expenses incurred in connection with such gifts can be claimed as a deduction. For instance, if an individual receives a gift of property and incurs expenses on registration fees or other expenses related to the transfer of property, such expenses can be claimed as a deduction. In conclusion, though certain income types are exempt from income tax, the expenses incurred in connection with such income can be claimed as a deduction. It is crucial to maintain proper records of such expenses to claim the maximum deduction allowed under the Income Tax Act. Seeking advice from a tax expert is advisable to ensure the proper guidance on claiming deductions. section 14A of Income Tax Act, 1961 (1) 1[Notwithstanding anything to the contrary contained in this Act, for the purposes of] computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. (2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed2, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. (3) The provisions of sub-section (2) shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act : Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. Services of B K Goyal & Co LLP Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases | Income Escapement Cases | Search & Seizure | CIT Appeal | ITAT Appeal | Auditors | Internal Audit | Financial Audit | Process Audit | IEC Code | CA Certification | Income Tax Penalty Notice u/s 271(1)(c) | Income Tax Notice u/s 142(1) | Income Tax Notice u/s 144 |Income Tax Notice u/s 148 | Income Tax Demand Notice 

The taxation system in India classifies income into five different categories, commonly referred to as “heads of income.” It is crucial to have a proper understanding of these categories for effective tax planning and filing of income tax returns. In this article, we will delve into each of these five heads of income in detail. Income from Employment: The revenue earned from an occupation or profession is recognized as “Income from Employment.” This category encompasses basic salary, bonuses, commissions, perks, and allowances. Employers are required to deduct tax at source (TDS) on behalf of their employees, and employees can claim deductions for expenses such as conveyance, medical expenses, and house rent allowance (HRA) to reduce their taxable income. Income from Real Estate Property: Revenue generated from a building or house is termed “Income from Real Estate Property.” This head includes rental income earned from commercial or residential property and any income generated from the sale of a property. The net annual value of the property is calculated by deducting municipal taxes and property repair expenses from the gross annual value. A standard deduction of 30% is allowed from the net annual value to determine the taxable income. Profits and Gains from Business or Profession: This category covers the income earned from a business or profession. This includes income from trading, providing services, or manufacturing, as well as any profits or losses from such activities. Tax deductions are allowed for expenses incurred in carrying out the business or profession, such as salaries, rent, interest, and depreciation. Income from Capital Gains: Revenue generated from the sale of a capital asset is referred to as “Income from Capital Gains.” This category encompasses revenue generated from selling a house, stocks, mutual funds, or any other asset that has appreciated in value over time. The tax is levied on the profit earned from the sale of the asset, which is the difference between the sale price and the purchase price. Income from Miscellaneous Sources: Any income that does not fall under the other four categories is included in this head. This category includes interest earned on savings accounts, fixed deposits, and recurring deposits, as well as income from lottery winnings, gifts, and other sources. Deductions are allowed for expenses incurred in earning such income. In conclusion, having a proper understanding of the five heads of income is crucial for effective tax planning and filing of income tax returns. It is essential to keep up with the latest tax regulations and filing procedures, and seeking professional advice is always recommended when in doubt. section 14 of Income Tax Act, 1961 Save as otherwise provided by this Act, all income shall, for the purposes of charge of income-tax and computation of total income, be classified under the following heads of income :— A.—Salaries. B.—[***] C.—Income from house property. D.—Profits and gains of business or profession. E.—Capital gains. F.—Income from other sources. Services of B K Goyal & Co LLP Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases | Income Escapement Cases | Search & Seizure | CIT Appeal | ITAT Appeal | Auditors | Internal Audit | Financial Audit | Process Audit | IEC Code | CA Certification | Income Tax Penalty Notice u/s 271(1)(c) | Income Tax Notice u/s 142(1) | Income Tax Notice u/s 144 |Income Tax Notice u/s 148 | Income Tax Demand Notice 

Electoral trusts, which were established to foster transparency in political funding in India, receive voluntary donations from contributors. These donations are subsequently allocated to political parties or candidates to cover expenses related to elections. The Income Tax Act’s Section 13B outlines specific provisions regarding the voluntary contributions that electoral trusts receive, which we will discuss in depth. Under Section 80GGB of the Income Tax Act, 1961, donors who contribute to an electoral trust are eligible for tax exemption. The entire sum of the donation is deducted from the donor’s taxable income. However, the trust must provide the donor with a donation certificate that meets the prescribed format. Electoral trusts are exempt from paying income tax under Section 11 of the Income Tax Act, 1961. Nevertheless, they must submit their annual returns to the income tax department in the format specified. Electoral trusts are prohibited from accepting contributions from foreign sources or any company that generates more than 7.5% of its income from government contracts. The maximum amount that can be accepted from a single donor is Rs. 20 crores. Electoral trusts must distribute at least 95% of the contributions received to political parties or candidates within a stipulated period. The trust is also obliged to maintain a record of the contributions received and the disbursements made. Electoral trusts must operate with complete transparency. They must file an annual report with the Election Commission of India that includes information about the contributions received and the disbursements made. The report must be available for public scrutiny. In summary, Section 13B of the Income Tax Act, 1961 provides specific provisions for voluntary donations received by electoral trusts. These provisions aim to improve transparency in political funding by providing tax exemptions for donors and electoral trusts, limiting contributions, specifying requirements for disbursement of funds, and mandating transparency in the functioning of electoral trusts. These measures have contributed significantly to enhancing the transparency and accountability of political funding in India. section 13B of Income Tax Act, 1961 Any voluntary contributions received by an electoral trust shall not be included in the total income of the previous year of such electoral trust, if— (a)  such electoral trust distributes to any political party, registered under section 29A of the Representation of the People Act, 1951 (43 of 1951), during the said previous year, ninety-five per cent of the aggregate donations received by it during the said previous year along with the surplus, if any, brought forward from any earlier previous year; and (b)  such electoral trust functions in accordance with the rules99 made by the Central Government. Services of B K Goyal & Co LLP Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases | Income Escapement Cases | Search & Seizure | CIT Appeal | ITAT Appeal | Auditors | Internal Audit | Financial Audit | Process Audit | IEC Code | CA Certification | Income Tax Penalty Notice u/s 271(1)(c) | Income Tax Notice u/s 142(1) | Income Tax Notice u/s 144 |Income Tax Notice u/s 148 | Income Tax Demand Notice 

Political entities play a crucial role in shaping the future of India by representing the interests of various sections of society. However, they require financial resources to carry out their activities, and as such, they are obligated to raise funds to meet their expenses. Under the provisions of the Income Tax Act, 1961, political parties are subject to taxation on their income. However, the provisions governing the incomes of political parties are distinct from those for other entities. In this article, we will delve into the unique provisions related to the incomes of political parties under the Income Tax Act, 1961. As per the Income Tax Act, a political party is defined as any group of people or association registered with the Election Commission of India as a political party under Section 29A of the Representation of the People Act, 1951. Regarding voluntary contributions, any income derived by a political party from such donations is exempt from tax, provided that the donations do not exceed 20% of the total income of the political party in a financial year. Furthermore, any income of a political party that is not exempt under Section 13A of the Income Tax Act, 1961, is subject to taxation at a rate of 30%. However, the following incomes are exempt from taxation: Income from property owned by a political party, which is used for its activities. Income from capital gains arising from the transfer of assets owned by a political party, which is used for its activities. Any income received by a political party from an electoral trust established under Section 88G of the Income Tax Act, 1961. Any income received by a political party from the contributions made by a person who is not a citizen of India or a company incorporated outside India. Any income received by a political party from the contributions made by an individual, where the aggregate amount of such contribution does not exceed Rs. 2,000. Any income received by a political party from the contributions made by any person, where the political party maintains a record of such contributions and the identity of the contributors. Every political party is mandated to maintain accurate books of accounts and get them audited annually by a qualified chartered accountant. The audit report and the income and expenditure statement of the political party should be submitted to the Election Commission of India by 30th September every year. Additionally, every political party is required to present a statement of donations received in excess of Rs. 20,000, along with the names and addresses of the donors, to the Election Commission of India before 31st October every year. In conclusion, the specific provisions related to the incomes of political parties under the Income Tax Act, 1961, aim to ensure that political parties have adequate financial resources while maintaining transparency and accountability in their functioning. These provisions strike a balance between the need for financial resources and the need for transparency in the finances of political parties. section 13A of Income Tax Act, 1961 Any income of a political party which is chargeable under the head “Income from house property” or “Income from other sources” or “Capital gains” or any income by way of voluntary contributions received by a political party from any person shall not be included in the total income of the previous year of such political party : Provided that— (a)  such political party keeps and maintains such books of account and other documents as would enable the Assessing Officer to properly deduce its income therefrom; (b)  in respect of each such voluntary contribution other than contribution by way of electoral bond in excess of twenty thousand rupees, such political party keeps and maintains a record of such contribution and the name and address of the person who has made such contribution; (c)  the accounts of such political party are audited by an accountant as defined in the Explanation below sub-section (2) of section 288; and (d)  no donation exceeding two thousand rupees is received by such political party otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed98 or through electoral bond. Explanation.—For the purposes of this proviso, “electoral bond” means a bond referred to in the Explanation to sub-section (3) of section 31 of the Reserve Bank of India Act, 1934 (2 of 1934): Provided further that if the treasurer of such political party or any other person authorised by that political party in this behalf fails to submit a report under sub-section (3) of section 29C of the Representation of the People Act, 1951 (43 of 1951) for a financial year, no exemption under this section shall be available for that political party for such financial year: Provided also that such political party furnishes a return of income for the previous year in accordance with the provisions of sub-section (4B) of section 139 on or before the due date under that section. Explanation.—For the purposes of this section, “political party” means a political party registered under section 29A of the Representation of the People Act, 1951 (43 of 1951). Services of B K Goyal & Co LLP Income Tax Return Filing | Income Tax Appeal | Income Tax Notice | GST Registration | GST Return Filing | FSSAI Registration | Company Registration | Company Audit | Company Annual Compliance | Income Tax Audit | Nidhi Company Registration| LLP Registration | Accounting in India | NGO Registration | NGO Audit | ESG | BRSR | Private Security Agency | Udyam Registration | Trademark Registration | Copyright Registration | Patent Registration | Import Export Code | Forensic Accounting and Fraud Detection | Section 8 Company | Foreign Company | 80G and 12A Certificate | FCRA Registration |DGGI Cases | Scrutiny Cases | Income Escapement Cases | Search & Seizure | CIT Appeal | ITAT Appeal | Auditors | Internal Audit | Financial Audit | Process Audit | IEC Code

he Income Tax Act, 1961 encompasses Section 11 and Section 13, which serve to regulate the taxation of profits earned by charitable trusts or institutions. These entities are permitted to enjoy tax exemptions for their revenue as long as certain conditions are met. However, there are specific scenarios where Section 11 may not be applicable, and Section 13 may be invoked to levy taxes on the earnings obtained. Section 11 of the Income Tax Act, 1961 confers immunities on revenue obtained by charitable trusts or institutions when utilized for charitable purposes. Such earnings may include proceeds from property held under trust for charitable, religious, or public benefit objectives, voluntary contributions made to the trust, or profits derived from any business or trade carried out by the trust or institution that is incidental to its charitable aims. In contrast, Section 13 of the Income Tax Act, 1961 imposes taxation on earnings obtained by charitable trusts or institutions under specific circumstances. Such scenarios may include situations where income is derived from property held under trust but is not used for charitable objectives, voluntary contributions received that are not applied to charitable aims, income derived from business or trade that is not ancillary to the trust’s objectives, or income derived from property held under trust that is not being used for charitable purposes. Section 11 may not be applicable in instances where charitable trusts or institutions engage in business or commercial activities that do not align with their charitable goals. Also, earnings derived from property held under trust and used for non-charitable purposes are not exempt under Section 11. Furthermore, anonymous donations that cannot be accounted for and income earned from investments that are not being used for charitable purposes may not qualify for exemptions under Section 11. In summary, while Section 11 of the Income Tax Act, 1961 provides tax exemptions for earnings obtained by charitable trusts or institutions, Section 13 outlines the circumstances under which such income may be taxed. Charitable trusts and institutions must ensure that their activities and use of revenue align with the conditions for tax exemption under Section 11 to avoid taxation under Section 13. section 13 of Income Tax Act, 1961 (1) Nothing contained in section 11 or section 12 shall operate so as to exclude from the total income of the previous year of the person in receipt thereof— (a)  any part of the income from the property held under a trust for private religious purposes which does not enure for the benefit of the public; (b)  in the case of a trust for charitable purposes or a charitable institution created or established after the commencement of this Act, any income thereof if the trust or institution is created or established for the benefit of any particular religious community or caste; (bb) [***] (c)  in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof—  (i)  if such trust or institution has been created or established after the commencement of this Act and under the terms of the trust or the rules governing the institution, any part of such income enures, or  (ii)  if any part of such income or any property of the trust or the institution (whenever created or established) is during the previous year used or applied, directly or indirectly for the benefit of any person referred to in sub-section (3) 95-96[, such part of income as referred to in sub-clauses (i) and (ii)] : Provided that in the case of a trust or institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3), if such use or application is by way of compliance with a mandatory term of the trust or a mandatory rule governing the institution : Provided further that in the case of a trust for religious purposes or a religious institution (whenever created or established) or a trust for charitable purposes or a charitable institution created or established before the commencement of this Act, the provisions of sub-clause (ii) shall not apply to any use or application, whether directly or indirectly, of any part of such income or any property of the trust or institution for the benefit of any person referred to in sub-section (3) in so far as such use or application relates to any period before the 1st day of June, 1970; (d)  in the case of a trust for charitable or religious purposes or a charitable or religious institution, any income thereof, if for any period during the previous year—  (i)  any funds of the trust or institution are invested or deposited after the 28th day of February, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11; or  (ii)  any funds of the trust or institution invested or deposited before the 1st day of March, 1983 otherwise than in any one or more of the forms or modes specified in sub-section (5) of section 11 continue to remain so invested or deposited after the 30th day of November, 1983; or (iii)  any shares in a company, other than— (A) shares in a public sector company; (B) shares prescribed as a form or mode of investment under clause (xii) of sub-section (5) of section 11, are held by the trust or institution after the 30th day of November, 1983 95-96[, to the extent of such deposits or investments referred to in sub-clauses (i), (ii) and (iii)]: Provided that nothing in this clause shall apply in relation to—   (i)  any assets held by the trust or institution where such assets form part of the corpus of the trust or institution as on the 1st day of June, 1973; (ia)  any accretion to the shares, forming part of the corpus mentioned in clause (i), by way of

If you’re planning to establish a charity or philanthropic organization in India, it’s crucial to register for Section 12AB of the Income Tax Act to avail the tax exemptions and benefits provided under Indian tax laws. In this blog post, we’ll outline the steps involved in the process of fresh registration for income tax Section 12AB. Step 1: Obtain PAN and TAN The first step towards registration is obtaining a Permanent Account Number (PAN) and Tax Deduction and Collection Account Number (TAN), which are mandatory for all types of organizations in India, including charitable trusts. Step 2: Create a Trust Deed The next step is to draft a trust deed, a legal document that outlines the trust’s objectives, activities, and governing rules. The trust deed must include essential information such as: The name of the trust The trust’s objectives and activities The names and addresses of trustees Regulations for the governance of the trust Procedures for the appointment and removal of trustees Procedures for the dissolution of the trust The trust deed must be executed on a non-judicial stamp paper and signed by all trustees in the presence of two witnesses. Step 3: Register the Trust Deed The trust deed must be registered with the Registrar of Assurances or Sub-Registrar of the district where the trust is located. The registration fee may differ from state to state. Step 4: Collect Necessary Documents for Registration The following documents are required for the registration of Section 12AB: A copy of the trust deed and its registration certificate Copies of the PAN and TAN Copies of the address proofs of trustees Copies of the trust’s accounts and audit reports for the last three years A list of donors and their contributions Step 5: Apply for Registration The application for registration must be submitted online in Form 10A on the Income Tax Department’s website. The following details must be provided in the form: The name and address of the trust The trust’s objectives and activities Details of trustees, including their PAN and Aadhaar numbers Details of the authorized signatory Registration details of the trust deed Details of the donor’s contributions Step 6: Verification and Approval After submitting the application, the Income Tax Department will review the documents and information provided in the application. If everything is in order, the department will issue a registration certificate under Section 12AB of the Income Tax Act. The certificate will be valid for five years and can be renewed by filing an application in Form 10AB. Conclusion Registering for Section 12AB is an important step for philanthropic trusts in India as it provides various tax exemptions and benefits to the trust and its donors. By following the aforementioned procedure, you can register your trust and commence your philanthropic activities in India. section 12AB of Income Tax Act, 1961 (1) The Principal Commissioner or Commissioner, on receipt of an application made under clause (ac) of sub-section (1) of section 12A, shall,— (a)  where the application is made under sub-clause (i) of the said clause, pass an order in writing registering the trust or institution for a period of five years; (b)  where the application is made under sub-clause (ii) or sub-clause (iii) or sub-clause (iv) or sub-clause (v) of the said clause,—   (i)  call for such documents or information from the trust or institution or make such inquiries as he thinks necessary in order to satisfy himself about— (A)  the genuineness of activities of the trust or institution; and (B)  the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects; (ii)  after satisfying himself about the objects of the trust or institution and the genuineness of its activities under item (A) and compliance of the requirements under item (B), of sub-clause (i),— (A) pass an order in writing registering the trust or institution for a period of five years; or (B)  if he is not so satisfied, pass an order in writing rejecting such application and also cancelling its registration after affording a reasonable opportunity of being heard; (c)  where the application is made under sub-clause (vi) of the said clause, pass an order in writing provisionally registering the trust or institution for a period of three years from the assessment year from which the registration is sought, and send a copy of such order to the trust or institution. (2) All applications, pending before the Principal Commissioner or Commissioner on which no order has been passed under clause (b) of sub-section (1) of section 12AA before the date on which this section has come into force, shall be deemed to be applications made under sub-clause (vi) of clause (ac) of sub-section (1) of section 12A on that date. (3) The order under clause (a), sub-clause (ii) of clause (b) and clause (c), of sub-section (1) shall be passed, in such form and manner as may be prescribed, before expiry of the period of three months, six months and one month, respectively, calculated from the end of the month in which the application was received. 94[(4) Where registration or provisional registration of a trust or an institution has been granted under clause (a) or clause (b) or clause (c) of sub-section (1) or clause (b) of sub-section (1) of section 12AA, as the case may be, and subsequently,— (a)  the Principal Commissioner or Commissioner has noticed occurrence of one or more specified violations during any previous year; or (b)  the Principal Commissioner or Commissioner has received a reference from the Assessing Officer under the second proviso to sub-section (3) of section 143 for any previous year; or (c)  such case has been selected in accordance with the risk management strategy, formulated by the Board from time to time, for any previous year, the Principal Commissioner or Commissioner shall—  (i)  call for such documents or information from the trust or institution, or make such inquiry as he thinks necessary in order to satisfy himself about the occurrence or otherwise of any specified

If a benevolent or spiritual trust wishes to avail tax exemption on its earnings, it must register under Section 12AA of the Income Tax Act, 1961. Registration under this section is crucial to receive tax benefits as per Section 80G of the Income Tax Act. Here is a stepwise guide on how to register under Section 12AA: Step 1: Obtain the Required Papers Initially, the trust must procure the subsequent papers before filing for registration: Trust Deed: A photocopy of the trust deed, which must be duly executed on non-judicial stamp paper and registered with the sub-registrar’s office. PAN Card: A photocopy of the trust’s PAN card. Address Proof: A photocopy of the address proof of the trust’s registered office, such as electricity bill, water bill, or property tax receipt. Accounts: A photocopy of the trust’s audited financial statements for the last three years. Step 2: Submit the Registration Application After acquiring the essential papers, the trust must file an application for registration in Form 10A with the Commissioner of Income Tax (Exemptions) in the area where the trust is based. The application should consist of the following: Photocopies of the trust deed, PAN card, address proof, and audited financial statements. A report on the trust’s activities since its inception or for the previous three years, whichever is less. A brief on the charitable activities of the trust. A photocopy of the resolution of the trust’s governing body authorizing the submission of the application. A photocopy of the order granting registration under the Societies Registration Act, 1860, or the Indian Trusts Act, 1882, if any. Step 3: Verification by the Commissioner of Income Tax After receiving the application, the Commissioner of Income Tax (Exemptions) will verify the information and may ask for additional information or papers. The Commissioner may also perform a physical inspection of the registered office of the trust. Step 4: Registration Approval If the Commissioner is content with the application and supporting documents, the Commissioner will approve registration under Section 12AA for the trust. The registration will be valid from the date of the trust’s inception or from the date of the application, whichever is later. If the Commissioner is not satisfied with the application or if inconsistencies are discovered during the verification process, the Commissioner may reject the application and notify the trust of the reasons for the rejection. Conclusion Registration under Section 12AA is crucial for any benevolent or spiritual trust seeking tax exemption on its income. The process is uncomplicated but necessitates the trust to procure the essential documents and submit an application with the Commissioner of Income Tax (Exemptions). Once registered, the trust can enjoy tax benefits under Section 80G of the Income Tax Act, which can facilitate its charitable or spiritual pursuits. section 12AA of Income Tax Act, 1961 (1) The Principal Commissioner or Commissioner, on receipt of an application for registration of a trust or institution made under clause (a) or clause (aa) or clause (ab) of sub-section (1) of section 12A, shall— (a)  call for such documents or information from the trust or institution as he thinks necessary in order to satisfy himself about,—  (i)  the genuineness of activities of the trust or institution; and (ii)  the compliance of such requirements of any other law for the time being in force by the trust or institution as are material for the purpose of achieving its objects, and may also make such inquiries as he may deem necessary in this behalf; and (b) after satisfying himself about the objects of the trust or institution and the genuineness of its activities as required under sub-clause (i) of clause (a) and compliance of the requirements under sub-clause (ii) of the said clause, he—  (i)  shall pass an order in writing registering the trust or institution;  (ii)  shall, if he is not so satisfied, pass an order in writing refusing to register the trust or institution, and a copy of such order shall be sent to the applicant : Provided that no order under sub-clause (ii) shall be passed unless the applicant has been given a reasonable opportunity of being heard. (1A) All applications, pending before the Principal Chief Commissioner or Chief Commissioner on which no order has been passed under clause (b) of sub-section (1) before the 1st day of June, 1999, shall stand transferred on that day to the Principal Commissioner or Commissioner and the Principal Commissioner or Commissioner may proceed with such applications under that sub-section from the stage at which they were on that day. (2) Every order granting or refusing registration under clause (b) of sub-section (1) shall be passed before the expiry of six months from the end of the month in which the application was received under clause (a) or clause (aa) or clause (ab) of sub-section (1) of section 12A. (3) Where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and subsequently the Principal Commissioner or Commissioner is satisfied that the activities of such trust or institution are not genuine or are not being carried out in accordance with the objects of the trust or institution, as the case may be, he shall pass an order in writing cancelling the registration of such trust or institution: Provided that no order under this sub-section shall be passed unless such trust or institution has been given a reasonable opportunity of being heard. (4) Without prejudice to the provisions of sub-section (3), where a trust or an institution has been granted registration under clause (b) of sub-section (1) or has obtained registration at any time under section 12A [as it stood before its amendment by the Finance (No. 2) Act, 1996 (33 of 1996)] and subsequently it is noticed that— (a)  the activities of the trust or the institution are being carried out in a manner that the provisions