On 18th June 2024, vide Legal Notice 105 of 2024, the Income Tax (Charitable Organisations and Donations Exemption) Rules 2024 came into force. They revoked the Income Tax (Charitable Donations) Regulations, 2007.
These rules are crucial for both non-profit entities and donors alike, impacting how tax exemptions are applied and managed. Understanding these regulations is essential for compliance and optimizing the benefits of charitable giving.
Overview of the Rules
The Income Tax (Charitable Organisations and Donations Exemption) Rules 2024 provide a structured framework under which charitable organisations can qualify for tax exemptions on their income. These rules define what constitutes a charitable organisation, the criteria for eligibility, and the procedures for claiming exemptions.
Qualification Criteria for Charitable Organisations
To qualify for tax exemption under the new rules, charitable organisations must meet certain criteria:
Registration and Compliance: The organisation must be registered under the relevant laws governing charities and non-profits. It must comply with all statutory requirements and regulations.
Purpose and Activities: The primary purpose of the organisation must be charitable, religious, educational, scientific, or literary in nature. Activities conducted by the organisation should align with these purposes.
Non-Profit Status: The organisation should operate on a non-profit basis, meaning that any surplus income should be reinvested into the organisation’s activities rather than distributed to members or shareholders.
Transparency and Accountability: There should be transparency in the organisation's financial dealings and governance structure. Regular audits and financial reporting are typically required to ensure accountability.
Exemptions on Income
Under the new rules, charitable organisations may enjoy exemptions on various types of income, including:-
Donations: Income received as donations or contributions from individuals, corporations, or other entities towards the charitable activities of the organisation.
Investment Income: Income generated from investments made by the organisation, provided that such income is used for charitable purposes.
Income from Specific Activities: Certain specific activities related to the organisation’s charitable purposes may also qualify for exemptions, subject to conditions specified in the rules.
Procedures for Claiming Exemptions
Charitable organisations seeking tax exemptions under the new rules must follow specific procedures:
Application: Submit an application to the relevant tax authority along with supporting documents that demonstrate compliance with the qualification criteria.
Documentation: Maintain accurate records of donations received, expenditures made, and other financial transactions to substantiate claims for tax exemptions.
Annual Reporting: File annual reports and financial statements with the tax authority to maintain tax-exempt status. These reports should detail the organisation’s activities, income sources, and expenditures.
Audit Requirements: In some cases, organisations may be subject to audits by the tax authority to verify compliance with the rules and proper utilisation of funds.
Impact on Donors
For individuals and corporations making donations to charitable organisations, the new rules offer clarity and assurance regarding tax benefits:-
Tax Deductions: Donors can claim deductions on donations made to qualifying charitable organisations, subject to limits and conditions specified in the tax laws.
Verification: Donors should ensure that the recipient organisation is registered and compliant with the Income Tax rules to avail of tax benefits.
Reporting Obligations: Keep records of donations made and obtain receipts or acknowledgments from the charitable organisation to substantiate deductions claimed during tax filing.
Conclusion
The Income Tax (Charitable Organisations and Donations Exemption) Rules 2024 are designed to promote transparency, accountability, and efficiency in the administration of tax exemptions for charitable organisations.
By adhering to these rules, both charitable organisations and donors can contribute to social causes effectively while benefiting from the incentives provided under the tax laws. It is essential for all stakeholders to stay informed about these regulations to ensure compliance and maximize the positive impact of charitable activities on society.
