Income Tax Benefits for Charitable Trusts and NGOs for Financial Year 2024-2025
Charitable trusts and NGOs continue to play a crucial role in India by addressing key social issues such as poverty alleviation, education, healthcare, rural development, and environmental conservation. As these organizations rely heavily on donations and grants to fund their activities, the Indian government provides several tax benefits to support their operations.
For the financial year 2024-2025, these benefits can help charitable trusts and NGOs maximize their resources and focus more on their missions. Let’s explore the various income tax exemptions and deductions that are available for these entities, along with updates specific to this year.
1. Tax Exemption Under Section 11 and Section 12
For charitable trusts and NGOs, the tax exemption under Section 11 and 12 of the Income Tax Act remains one of the most significant financial benefits. Under these provisions, charitable organizations do not have to pay income tax on the income they earn, as long as the income is used for charitable purposes.
Key Conditions for Exemption:
- Income Applied for Charitable Purpose: The income earned by the charitable trust or NGO must be used for purposes specified in the trust deed, such as relief to the poor, education, health, or religious purposes.
- 85% Rule: The organization must apply at least 85% of its total income towards its charitable objectives. If it fails to do so, the income remaining (which is not utilized for charitable purposes) may be taxed.
2. Section 80G: Tax Benefits for Donors
Under Section 80G, individuals and companies that donate to eligible NGOs and charitable trusts are entitled to a tax deduction. This incentivizes donations to such organizations and helps them secure much-needed funding.
Key Highlights:
- 50% or 100% Deduction: Donations made to eligible NGOs may qualify for either a 100% or 50% tax deduction depending on the organization’s registration status and the type of donation.
- 100% Deduction: Certain specified NGOs are eligible for 100% deduction.
- 50% Deduction: Most registered NGOs and charitable organizations are eligible for 50% deduction.
- Cash Donations: For the financial year 2024-2025, cash donations exceeding Rs. 2,000 are not eligible for tax benefits. Donors must make payments via cheque, bank transfer, or demand draft for amounts greater than Rs. 2,000.
Eligibility Criteria for NGOs:
To offer tax deductions under Section 80G, the NGO must:
- Be registered under Section 80G of the Income Tax Act.
- Be involved in activities that align with the objectives approved by the Income Tax Department.
3. Tax Exemption Under Section 35AC/35(1)(ii)
Section 35AC and 35(1)(ii) are provisions that allow tax exemptions for organizations involved in:
- Scientific Research.
- Social Welfare Projects.
- Rural Development.
For the financial year 2024-2025, organizations engaged in these activities continue to be eligible for tax exemptions on the income they generate, along with certain deductions for donors who contribute to these activities.
For Donors:
- 100% Deduction: Donors contributing to projects that are approved under Section 35AC may also be eligible for 100% tax deductions.
4. Section 12A and 12AA Registration
For charitable trusts and NGOs to avail themselves of tax exemptions under Sections 11 and 12, they must register under Section 12A and Section 12AA of the Income Tax Act. This ensures that the organization is legitimate, and the income it generates is being used for charitable purposes.
Registration Process:
- The organization must apply to the Income Tax Department for registration under Section 12A.
- After registration, the organization can claim tax exemption on income under Sections 11 and 12.
5. Capital Gains Exemption for Charitable Trusts (Section 11)
If a charitable trust or NGO sells a property or asset and earns capital gains, the capital gains may be exempt from tax under Section 11, provided the proceeds are used for charitable purposes. This exemption allows organizations to reinvest the capital gains into their charitable projects.
Important Conditions:
- The proceeds from the sale must be reinvested in furthering the trust’s objectives.
- The trust must maintain proper documentation to substantiate the reinvestment.
6. GST Exemption for Charitable Trusts and NGOs
In the financial year 2024-2025, charitable organizations continue to enjoy Goods and Services Tax (GST) exemptions on certain services such as:
- Charitable services.
- Educational services.
- Health and welfare services.
These exemptions help NGOs and charitable trusts save on administrative costs and direct more funds toward their social work.
7. Tax Benefits for NGOs Working on Religious Activities
Charitable organizations engaged in religious activities may also qualify for tax exemptions. However, the tax exemption is available only if the organization is involved in genuine charitable work alongside religious activities.
Eligibility for Exemption:
- The organization must provide services such as education, healthcare, or social welfare in addition to religious activities.
- Religious trusts that do not engage in charitable work may not qualify for tax exemptions under Section 11 and Section 12.
8. New Rules for NGOs: Enhanced Compliance
For the financial year 2024-2025, the Income Tax Department has tightened compliance requirements for NGOs and charitable trusts. They must ensure:
- Proper Documentation: Maintain detailed records of donations, receipts, and expenditure on charitable purposes.
- Annual Returns: Submit annual returns to the Income Tax Department along with audited financial statements.
- TDS Compliance: Ensure proper compliance with Tax Deducted at Source (TDS) provisions where applicable.
Conclusion: Maximizing Resources for Charitable Trusts and NGOs in 2024-2025
The income tax benefits available to charitable trusts and NGOs are crucial for ensuring that these organizations can continue their work without financial hindrance. By understanding the available exemptions, deductions, and compliance requirements for the financial year 2024-2025, charitable organizations can maximize their funding potential and focus on delivering meaningful results to society.
For charitable organizations, it is essential to stay updated on the registration processes, maintain proper documentation, and adhere to compliance guidelines to ensure eligibility for these tax benefits. This will help them sustain their operations and continue making a positive impact on their communities and causes.
Disclaimer:
The information provided in this blog is for general informational and education purposes only and does not constitute financial, investment, or professional advice. Always conduct your own research or consult with a qualified financial advisor before making any investment decisions. Investing involves risk, and there is no guarantee of returns. The views expressed here are solely those of the author and do not reflect the opinions of any financial institution, company, or organization. KVSTAX is not responsible for any financial decisions or actions taken based on the content of this blog.