RBI/2011-12/251 DBOD.AML BC.No.47/14.01.001/2011-12 November 4, 2011

The Chairmen/Chief Executive Officers
All Scheduled Commercial Banks (excluding RRBs)/Local Area Banks

Dear Sir,

Payment of Cheques/Drafts/Pay Orders/Banker’s Cheques

In India, it has been the usual practice among bankers to make payment of only such cheques and drafts as are presented for payment within a period of six months from the date of the instrument.

2.  It has been brought to the notice of Reserve Bank by Government of India that some persons are taking undue advantage of the said practice of banks of making payment of cheques/drafts/pay orders/banker’s cheques presented within a period of six months from the date of the instrument as these instruments are being circulated in the market like cash for six months. Reserve Bank is satisfied that in public interest and in the interest of banking policy it is necessary to reduce the period within which cheques/drafts/pay orders/banker’s cheques are presented for payment from six months to three months from the date of such instrument. Accordingly, in exercise of the powers conferred by Section 35A of the Banking Regulation Act, 1949, Reserve Bank hereby directs that with effect from April 1, 2012, banks should not make payment of cheques/drafts/pay orders/banker’s cheques bearing that date or any subsequent date, if they are presented beyond the period of three months from the date of such instrument.

3.  Banks should ensure strict compliance of these directions and notify the holders of such instruments of the change in practice by printing or stamping on the cheque leaves, drafts, pay orders and banker’s cheques issued on or after April 1, 2012, by issuing suitable instruction for presentment within the period of three months from the date of the instrument.

4.  Please acknowledge receipt

Yours faithfully,

(Deepak Singhal)
Chief General Manager in-Charge

CIRCULAR

Section 10(23C)(iv) of the Income-tax Act, 1961 – Exemptions – Charitable or religious trusts/institutions – Clarification regarding period of validity of approvals issued under section 10(23C)(iv), (v), (vi) or (via) and section 80G(5) of the Income-tax Act

Circular No. 7/2010 [F.No.197/21/2010-ITA-I], Dated 27-10-2010

The Board has received various references from the field formations as well as members of public about the period of validity of approvals granted by the Chief Commissioners of Income Tax or Directors General of Income Tax under sub-clauses (iv), (v), (vi) and (via) of Section 10(23C) and by the Commissioners of Income Tax or Directors of Income Tax under Section 80G (5) of the Income Tax Act, 1961.

2. It has also been noticed by the Board that different field authorities are interpreting the provisions relating to the period of validity of the above approvals in a different manner. The following instructions are accordingly issued for the removal of doubts about the period of validity of various approvals referred to above.

3. Sub-Clauses (iv) and (v) of Section 10(23C) were amended by Taxation Laws (Amendment) Act, 2006 by insertion of the following proviso to that clause:-

“Provided also that any (notification issued by the Central Government under sub-clause (iv) or sub-clause (v), before the date on which the Taxation Laws (Amendment) Bill, 2006 receives the assent of the President, shall at any one time, have effect for such assessment year or years, not exceeding three assessment years) (including an assessment year or years commencing before the date on which such notification is issued) as may be specified in the notification.”

The intention behind the insertion of the above proviso was laid out in the relevant portion of the explanatory notes to the Taxation Laws Amendment Act, 2006 which reads as under:

“A need has been felt to dispense with the requirement of periodic renewal of notifications. The requirement of periodic renewal of notifications has been resulting in delays in their renewal.

5.2 In order to overcome delays, the eighth proviso to section 10(23C) has been amended so as to provide that the above mentioned limit of effectivity for three assessment years shall be applicable in respect of notifications issued by the Central Government under sub-clause (iv) or sub-clause (v) before the date on which Taxation Laws (Amendment) Bill, 2006 receives the assent of the President.

5.3 The Taxation Laws (Amendment) Bill, 2006 received the assent of the President on 13.07.2006. Therefore, on account of the above amendment any notification issued by the Central Government under the said sub-clause (iv) or sub-clause (v), on or after 13.07.2006 will be valid until withdrawn and there will be no requirement on the part of the assessee to seek renewal of the same after three years.”

The intention of legislature that the approvals under Section 10(23C) (iv) & (v) after the cut off date mentioned above would be a one time approval which would be valid until withdrawn, is thus sufficiently clear.

4. Approvals under Sub-Clauses (vi) and (via) of Section 10(23C) are governed by the procedure contained in Rule 2CA. Rule 2CA was amended w.e.f. 1.12.2006, inter alia by substitution of the existing sub-rule 3 by a new provision which is reproduced below:-

“(3) The approval of the Central Board of Direct Taxes or Chief Commissioner or Director General, as the case may be, granted before the 1st day of December, 2006 shall at any one time have effect for a period of exceeding three assessment years.”

Read in isolation, without any further guidance as was given by way of explanatory notes to Finance Act, 2006 in respect of amendment of sub-clauses (iv) & (v) of Section 10(23C), the above amendment leaves some scope for doubt about the period of validity of the approval under Section 10(23C)(vi) and (via) on or after 1.12.2006. For the removal of doubts if any in this regard, it is clarified that as in the case of approvals under sub-clauses (iv) & (v) of Section 10(23C), any approval issued on or after 1.12.2006 under sub-clause (vi) or (via) of that sub-section would also be a one time approval which would be valid till it is withdrawn.

5. As regards approvals granted upto 1.10.2009 under Section 80G by the Commissioners of Income Tax/ Directors of Income Tax, proviso to Section 80G(5) (vi) clarified that any approval shall have effect for such assessment year or years not exceeding five assessment years as may be specified in the approval. The above proviso was deleted by the Finance (No. 2) Act, 2009. The intent behind the deletion of above proviso as explained in the explanatory memorandum to Finance (No.2) Bill, 2009 was as under:

“Further as per clause (vi) of sub-section (5) of section 80G of the Income-tax Act, 1961, the institutions or funds to which the donations are made have to be approved by the Commissioner of Income-tax in accordance with the rules prescribed in rule 11AA of the Income-tax Rule, 1962. The proviso to this clause provides that any approval granted under this clause shall have effect for such assessment year or years, not exceeding five assessment years, as may be specified in the approval.

Due to this limitation imposed on the validity of such approvals, the approved institutions or funds have to bear the hardship of getting their approvals renewed from time to time. This is unduly burdensome for the bona fide institutions or funds and also leads to wastage of time and resources of the tax administration in renewing such approvals in a routine manner.

Therefore, it is proposed to omit the proviso to clause (vi) of sub-section (5) of section 80G to provide that the approval once granted shall continue to be valid in perpetuity. Further, the Commissioner will also have the power of withdraw the approval if the Commissioner is satisfied that the activities of such institution or fund are not genuine or are not being carried out in accordance with the objects of the institution or fund. This amendment will take effect from 1st day of October, 2009. Accordingly, existing approvals expiring on or after 1st October, 2009 shall be deemed to have been extended in perpetuity unless specifically withdrawn.”

It appears that some doubts still prevail about the period of validity of approval under Section 80G subsequent to 1.10.2009, especially in view of the fact that no corresponding change has been made in Rule 11A(4). To remove any doubts in this regard, it is reiterated that any approval under Section 80G(5) on or after 1.10.2009 would be a one time approval which would be valid till it is withdrawn.

Form 10G Application for grant of approval or continuance thereof to institution or fund under section 80G(5)(vi) of the Income-tax Act, 1961

Form No. 10A Application for registration of charitable or religious trust

Form No. 10 – For Exercising Options

Form No. 03A Income Tax Return

Introduction

Investment are critical to proper management of fund. This documents attempts to deal with what investment is, what are types of investment and some of the idea for dealing with this complicated subject. Besides, this document also contain two chart for keeping track of your investment (Available separately from download section).

What is investment

Investment mean:

To spend or devote for future advantage or benefit: invested much time and energy in getting a good education.

However in finance, investment means to commit (money or capital) in order to gain a financial return: invested their savings in stocks and bonds.

Investment  means Property or another possession acquired for future financial return or benifit.

Investment, means expenditure of wealth to enable future production or other advantageous economic yield. For an NGO an investment may denote besides saving and investment in financial instruments amount of money spend for the welfare of the people or organisation i.e Rs. 1 Lakh was invested for a well. In this newsletter. We will confine ourselves to investment in Financial instruments only .

Why it is important

Why investment is important and why we need much time in studying it and that too at the end to regret that one of the decision was wrong?

Sometimes your best investments are the you don’t make.

When we know that investment decision can be so risky why invest money at all. Let it remain as it is. We need to invest money wisely because ‘Tis money that begets money. And any money that can come into our way is welcome.

Investment decision are important because they can help us increase our health with which we can obtain our objectives. You may not need money for your own use but you definitely need it for the society or for the purpose of your life. For example, a NGO gets donation with great difficulty. If it can increase the value of such donation by taking certain wise and timely decision, surely the increased wealth may fill up some odd the ever pressing gaps.

Pitfalls of investing

As there are pro and cons in every thing of life, thing of life, there are pitfall of investing as well. This is one of the area where you can loose money as well. By investing it in wrong places at wrong time or by not disinvesting it in time. This is the situation where things can go terribly wrong. An NGO deals with public fund and because of the wrong decision of the office bearer if a donation of Rs. 5 Lakhs is reduced to Rs. 2 Lakhs or even nil you can understand the plight of organisation as well as office bearer. In fact, unconfirmed reports suggest that recently one of the leader of a religious sect committed suicide after one of his disciple in whose organisation a lot of money was invested for high interest went bankrupt.

Does this mean that an organisation should invest. There is risk every where breath there is risk to human life. yet, we do take decision and succeed. Wise risk taking decision are always welcome. Also when we get a donation, it is expected of us that we will invest the money to its full potential and wisely.

What kind of money should be invested

Now the question is what kind of money should be invested. Do you invest all your money. In fact,any surplus money you have or money which you do not need immediately or for a short period of time of three months or more should be invested. This will enhance the value of money. For example, if you receive a donation for a particular project and because of rainy season is over. In such a situation, you can safely invest money where you get it back at the time of your need. There is no hard and fast rule of what kind of money to invest.

Many organisation invest corpus donation that they receive in fixed income investments. Many organisation also invest money collected for special purpose, such as running a particular scholarship. The main intention behind such decision is that with the interest money they should be able to meet the annual expenditure.

Another kind of money which should be invested is money collected or kept apart for specific purpose such Old Age Fund, Emergency Fund etc. This ensure proper application of fund and because of the interest income the fund itself is not reduced. Expenses may be met by annual income.

TO know whether you have any money to invest and if so for what period a projected cash flow is a must.

Projected Cash Flow Statement

Every organisation should have a projected cash flow system. This is a statement where you write down what money you are expecting over next 12 months and what amount you need to spent over next 12 months. In case you have surplus, you can deposit money for high interest. One question that may be raised inthis regard is that NGO being dependent on donors do not know that money will come their way. This is largely unfounded. Such money which is not predictable is largely on account of project money and as their receipt is not determinable so is their expenses. If deemed fit, statement can be prepared one for the oganisation and one for the project(s). Any money left over in first statement should be definitely invested wisely.

Is there any legal requirement

Most NGO are registered under section 12 of the Income Tax Act. there is no specific rule to invest surplus of an NGO in a particular manner under the Income Tax Act.

However, in case you are exercising option under the Act (Option means that you are deferring your expenses for future years under the Income Tax Act) you are required to invest amount of option in a particular manner. This manner is specified in section 12 of the Income Tax Act and cover bank deposits. UTI deposits, other mutual fund etc. etc. The list is qiute big and is outside the scope of this article. Please refer to your legal consultant for complete list.

Where to invest

Is there any restrictions

As already explained in case of money covered under options, you need to invest them in the manner specified in section 12 of the Income Tax Act. Apart from this there is no restriction where you would like to put your money.

Where to invest money is by far the most important question and needs careful consideration. Below we have discussed some investment strategy as well as broad types of investment instruments available.

Before investing money it is good to think twice and not to invest in hurry. At the same time it is also suggested that you should not defer it for a long time just because you have no time to think about it. There you loose possible incomes.

A complete picture of where to invest money will emerge only after you have read through the entire paper.

Type of Investments

Below we discuss some of the types of investment:

Based on Income

Fixed Income

Under this category, investment documents are classified on the basis of income. Fixed income investment are those which offers you fixed rate of interest such as fixed deposit with the bank. Here the income is normally guranteed. India is moving towards a regime where such income will no more be guranteed. This is because of the changes taking place in the market. And this is also because no body wants to termed as cheat. So most of the mutual funds are avoiding promising a thing and later refusing the same. We have many cases in recent past, where banks were not able to keep their commitments. In future, we should see very little number of opportunity in this category of investment. Besides, those investments are offering more than market rate of interest be avoided as they likely to fall early.

One question may arise here. When the interest rate is fixed, how the banks or mutual fund can avoid the same in future. The trick is in the rule of the scheme. Such scheme are normally governed by a board of trustee which are filled up by the people of the mutual fund company. They can change the rule of the scheme including rate of interest at any time. No consent of the depositer who have their money is normally taken.

Cumulative and non-cumulative

Fixed incomes types of investment again is classified into Cumulative and non-cumulative type. Cumulative type are those in which you do not get periodic such as half yearly or yearly interest. These money is again invested resulting in more interest at the time of maturity. there is extra income for you in such kind of schemes. It is just a convenience. For example, if you invested Rs. 1,00,000/- in non-cumulative half yearly interest of 12%. You will get Rs. 6,000/- in the month of January and June. In cumulative type, you will not get any money and in the month of June you will get interest on the amount of investment and the amount of interest which has accumulated so far (Rs.1,00,000+Rs. 6,000) and in the month of January Next Year you will get interest on Rs.1,00,000+Rs.6,000+Rs.6,360). In case you are in a position to invest such interest yourself, you can get the same return in non-cumulative scheme as well. Given the risk factor and other consideration, you should invest in non-cumulative type in investment other than bank fixed deposits. This way you will be able to reduced your risk to same extent.

Speculative or growth type

These are types of investment where rate of return is not given or indicated. They are highly risky and at the same time very rewarding. If the scheme is successful you can get handsome return and if it is not you will loose money and peace.

Given the fact that taking breath is an equality risky proposition, it is suggested that for large organisation, a portion of the investment portfolio can be put into such documents. Such portion should be at round 5% and should in no case exceed 10 %. This again should be carefully monitored.

Classifying investment should be done purely based on the facts. Investment with even little doubt should be classified as Speculative.

If you have any doubt any investment these should be classified as speculative and should be considering while calculating above percentage.

Investment in real estates

This is also one of the area where a part of investment can be considered. In India, a lot of emotion value is attached to the land and buildings. if you buy a property as an investment you should have no hesitation in disposing off at a time you consider it appropriate. However, high cost of transfer and legal formalities normally discourage one to make investment in these areas.

Type of security

These are another characteristic based on which investment instruments can be distinguished.

We discuss below broad type of investment instruments available distinguished on the basis of type of security.

Government Security

Government Security are those security which are issued by Government both state and Central. further they are guaranteed by the Government. They are very secured but gives low rate of interest.

Semi – Government

These are the security which are offered by the Organisaton having government control such as PSU etc. Earlier they used to be guranteed by Government but now they are normally not guranteed by Government. They also have good level of security but give less than reasonable return.

Fixed deposits with banks

Till some year back they were the major investment for an NGO. Here the rate of interest is reasonable and they offer good security as well. Cumulative rate of interest are good investment opportunity. Normally an NGO should have bulk of its investment in these deposits as they are reasonably safe and have commensurate rate of interest.They are quite liquid in the sense that whenever you want money you can encash the same.

Fixed deposit with Manufacturing Companies

These are the fixed deposit with companies having manufacturing activities. They were distinguished as such after a lot of companies having financial activities failed on their commitments. They are more secured than the fixed deposit with Non-banking Financing Companies.

Fixed deposit with Non-banking Financing Corporation

These are the deposits one should better not make. They offer very attractive rate of interest and also very attractive commission on making a deposit. They are equally risky. An NGO should not normally invest in these companies. If it desired to invest in such companies, it should be ensured that they belong to a good and reputed group. Further they should have excellent credit ratings. Credit ratings are issued by the credit ranking companies which indicates the soundness of the company being rated and their ability to repay the principal and interest. The problem with such system is that such ratings are reviewed periodically and are announced in national level newspaper only. For an average NGO, it is difficuilt to keep track of such announcements.

Mutual Funds

Mutual Funds were one of the early investment opportunity available with NGO besides bank fixed deposits. They offer good and fixed rate of interest. Fixed rate of Interest are not being allowed now. The rate that is being announced now are normally only INDICATIVE. Actual rate should be expected to be lower than indicative rate.

In the scheme of mutual fund you can loose money also. I have seen many instances where investments of Rs.50,00,000/- were matured for Rs. 48,00,000 after six years. This fairly indicates a loss Rs. 52,00,000/- including interest.

Investment Strategy

In the next few paragraphs, we will discuss some strategy which can be applied while making an investment decision.

Balancing

It is undoubtedly harmful to have all your eggs in one basket. It is a must that you have a proper balance of all the kind of investment. For these purpose investment can be classified into:

• Safe and low interest
• Safe and resonable interest
• Low safety and high rate of interest

One should have maximum investment in the second category. The first category should also have resonable share of investment. The third category should be avoided or should have a very low share in the total portfolio.

Avoid high income yielding

High income yielding documents such as plantation companies, chit funds should be avoided. You are likely to live in guilt if you ever make a lot of investment in these documents. They are not likely to be honored. They also offer very good commission at the time of making investment which indicates that they do not get fund at the reasonable rate and this also increase cost of funds to them. For example, if a plantation company gives you a commission of 6% and interest of 24% actual cost to the plantation company is 25%.

Safe instruments

Safe instruments should be encouraged. There you may get less interest but you will get it.

Avoid too many instruments

I have seen many people investing in a lot schemes. They normally small sum in large number of schemes. They should be avoided. It is difficuilt to keep track of all the schemes. This tracking is now a days very essential. Also you will have to correspondence with many organisation for refund etc.

Don’t be one of large investor

This is a very important factor. Now many schemes are coming which are local in flavour and many times one has to make investment in them due to pressure etc. In such schemes as well as other schemes you should try not be one of the large investor. When it is so, the company will try to convince you not to withdraw your money, may delay your interest, because it is your that counts in the scheme.

Popularity

The scheme in which you plan to invest should be a popular one. It should have many investor which are optimistic about the scheme. This way the company will be under pressure to perform.

Promoter

The scheme should be promoted by a reputed and national level organisation. They should have good record of performance and service. Avoid groups which you consider are not good and which are not good in service.

Legal permission

Before investing please ensure that you have all the legal documents with you. If you need to take permission they should be obtained before hand. Also such decision should be made with the consent of your own finance committee and necessary resolution for making the investment should be passed in your Board.

High incentive off record commission

As a matter of fact, any one offering you a commission more than 2% should be avoided. They are paying you commission as they are not sure if they can pay you back the money or interest.

Investment record keeping

Making an investment, it is just a part of the whole process. For an investment decision, it should be ensured that necessary records are kept and are available to office bearer in case of need. We mention some of the documents which are a must:

• Original brochure
• Copy of original application duly filled in and signed
• Name & Address of company or Mutual Fund
• Registrar to the scheme
• Your own broker
• The bank where you deposited your application
• Original instruments
• Account of income – this should give you a history of income received on these investments
• Account of income / loss on maturity – this should contain the necessary details at the time of maturity.

These details should be updated on a continuous basis and comprehensive review should be made every half yearly.

Demat

Now a new procedure of DEMAT has been started. Under demat, one is not issued a paper certificate. A statement is issued which is like a bank passbook. Instead of depositing money in it, you deposit security and withdraw security. Compulsory demat has been applied to many shares. You need to open a demat account with one of the depository participant. They will give you an account number and other necessary particulars. While applying for mutual funds etc. you need to mention this number and your investment will be recorded in your account. You will not be issued paper certificate. They are very convenient as you are not responsible for the safe keeping of your documents. For more details on demat you may contact your broker or write to National Depository Limited at Mumbai.

When to encash your investments

Going by the rule book, it will seem appropriate that investments are encashed on the date of maturity. However, this does not hold good in today’s complex system. For example, in one of the scheme got more money than the others. This is a decision which requires continuous monitiring. Normally in a scheme there is a cut off period after which investment can be encashed say three year is another date on which such investment will be finally closed say ten years. Between three years and ten years at any time you can withdraw money.

In case of mutual funds considering the present situation, you should draw the money at the earliest.

I have seen many cases, where fixed deposits are renewed. They are renewed at a later date but you continue to get interest from the date of original maturity. This is an inducement on the part of the bank to continue deposit. This is an added advantage which you should try to avoid. If you renew your deposit in time, you may withdraw the same if you so like. But in case you renew the deposit after two months of their maturity, interest for the two months will compel you to continue the deposit.

In any case, you should not renew a deposit or continue in one for a period over 10 year. In such case, you should take the maturity amount and redeposit the same if you so like.

TDS and Investments

As per the present guidelines, income tax should be deducted from the interest income by the companies. Since most of NGO have no income liable to tax their income tax liability is normally nil. Such deduction adds hardship to the NGO. You should take the following steps to avoid TDS:

Submit form No 15H in time. For example for interest income for the year 1999-2000, you should submit Form No 15H before 15/3/99.

Have a record that you have submitted form no. 15H. Send them by regd. Post (No courier).

Even after this TDS is deducted from your investment income you have every right to get the same back. Please ask the company to return the TDS amount. They can adjust the same in their future returns.

What is Tax Deducted At Source

Deduction of tax is a method of collection of tax. This system is meant to check evasion of tax and to regulate collection of tax. For example, suppose a contractor construct a house for Rs. 5,00,000/-. After the work is over and the contract has taken money, he may submit his paper to the income tax department or may not. If he does not, the income tax department may find it difficult to trace him and collect tax from him. To reduce this type of evasion, concept of tax deduction at source has been introduced. Under this concept, while paying Rs. 5,00,000/-, the person paying the amount is to deduct, say, Rs. 10,000/- towards income tax and deposit the same with the bank.As such, the contractor is compelled to submit his paper to the Income Tax Department. The Income Tax Department gives him the credit for amount deducted by you based on your certificate. Since the tax is required to be deducted at the source of payment itself, it is called Tax Deducted At Source or TDS.

Which Act requires deduction of Tax

Normally, Income Tax and in many states Sales Tax are the Act which provides deduction of tax at source.

What kind of payment requires deduction of Tax

Normally, payment which is an income in the hand of the person receiving money, is subjects to TDS. Types of payment which require deduction of tax at source are specified in the Income Tax Act. And this list is growing day by day. Most common source of TDS are payment to contractor, payment to auditors, payment to interest, rent etc. You can obtain a complete list from your taxation advisor. Whenever, in doubt please check with your income tax consultant before making the payment.

How much to deduct

This also has been specified in the Act. The rate of deduction ranges from 1% to 20%. From AY 2010-11 there is no need to deduct surcharge and cess etc. Now the act prescribes two type of rate one in case you have the PAN No. of the person to whom you are making payment and the penal rate where you fail to obtain PAN number.

Is there any way of reducing me amount or no deduction at all

Yes. The Income Tax Act provides certain in which the amount of deduction can be reduced or can be made zero. In most of situation, a certificate from the amount from the income tax officer of the person to whom you are making the payment is required. A copy of such certificate should be obtained and kept on the record. Further, the Income Tax Officers are very hesitant to issue such certificate these days.

When to deduct

Since most of the society keeps accounts on cash basis, TDS should be done while making the payment. However, in case you are accounting a bill and and intend to pay later, TDS should be done on the date of accounting.

When and how should I make me payment to Government

Normally, TDS you deduct is required through Banks within seven days of the following months i.e. if you deduct some amount in April, you should pay it to the Government within May 7. TDS on some nature of payment e.g. salary requires that it should be paid within 7 days of the deduction. To avoid any confusion, it is better to pay within seven days of the deduction. Tax should be paid in the bank. They should be paid through challan available in the income tax department. You can obtain the same from your tan consultants. Challans are very simple to fill. You should ensure that all the information is correctly entered. All challans has been computerised. Any mistake done in filling up your particulars may delay the payee to get the credit. Now taxes are paid online. You may seek the help of your auditor to pay taxes online; You should also pay ODs in different Challan for each month and under each branch. For example, if you deduct tax in April from Rent and building Contractor make two Challan. This will help in preparation of your quarterly return.

What happens if I forget to deduct the tax

The best option is to ask the person you back the amount of TDS and the same in the normal manner, that is to regularise the same as soon as failure is noticed.

Accounting of TDS

TDS done by us

In many cases, it has been observed that no accounting entry for TDS is made and the amount is directly entered into the account of the person to whom payment is being made. For example, if TDS is being done from the contractor for the school building, net amount paid to contractor is debited in the school account and also the amount of TDS when paid to the Government is debited to the School Account. This way of accounting gives no information about the status of TDS. You should have two account in your books named as TDS From Us and TDS By Us. When TDS is done necessary entry should be passed in these accounts. When payment is made the same should be accounted in these accounts heads. In this way, you know the status of TDS account at a glance. This will also help you in preparing your annual TDS return.

TDS From Us

The way you deduct tax from your payment, tax may be deducted from payments made to you e.g. for example, TDS is done from payment of rent, payment of interest. In such cases, full amount of income should be credited to income account and TDS amount should be debited to TDS From Us Account. Subsequently, when refund is received from the income tax department. The same should be credited. The Income Tax department is also likely to give you Interest on your refund. They are not refund of TDS but Further income in the hand of the society. The same should be credited to the Account Interest from Income Tax Department and should be reflected in your income and expenditure account.

TDS ACTION PLAN

TDS requires you to take the following steps:

1. Apply for a TDS Number from a TIN facilation centre. Different units can apply for different number/p>

2. Actually deduce the tax wherever applicable.

3. Deposit the tax with the Government through the bank (within seven days of deduction).

4. Issue of TDS certificate ( in most cases, it is form No 16A) to the person from whom you have deducted the tax (within one month of deduction).

5. Each quarter submit quarterly return with the income tax authority / TI facilation centre.

Penalty

Income Tax Department has prescribed heavy penalty in case of non-compliance to the provision of the tax in respect of TDS. It is imperative that they should be followed carefully. Besides interest on delayed payment of TDS, you may be liable to pay penalty to the tune of Rs.100/- per day of default.

Conclusion

Provision of TDS are becoming complicated day by day. It is highly suggested that whenever you are in doubt, get in touch with your tax consultants, auditors and take appropriate actions. Even you commit mistakes, it is better to rectify the same instead of continuing with them.

EXECUTIVE SUMMARY

Section 80G of the Income Tax Act,1961 permits donors to Societies Registered U/s 80G benefits of income tax exemption on their donation. This is one of the incentive provided for the people to donate for a noble cause.As such, all NGO should try and obtain registration under section 80G. This is one way in which the NGO can express their gratitude to the donors.

What is Section 80G

Section 80G of the Income Tax Act enables an Income Tax Payee to claim deduction for donation made by them to certain organisation. This deduction is subject to certain conditions.

The amount of deduction depends on-

a). To whom the donation has been made.

b). The amount of donation. They are exempted from 100% to 50% of the amount of donation.

ARE ALL DONATIONS ELIGIBLE U/S 80G:

No. All donations are not eligible for deduction of U/s 80G. Only those donations qualify which is made to certain funds, charitable institutions registered or mentioned under U/S 80G.

WHAT ARE THOSE INSTITUTIONS:

a). Several Institutions of National importance such as-

National Defence Fund.

Prime Minister’s National Relief Fund.

Prime Minister’s Drought Relief Fund etc.

Are expressly mentioned in the Section 80G. Any donation to them quality for deduction U/s 80G by the Donor.

b). The Chief Commissioner of Income Tax can approve institutions under this section. Earlier Religious Institutions were expressly not allowed to be registered U/s 80G. However, those organisation whose expense were not related to religious activities were allowed. Currently, those religious organisations which spent an amount not exceeding 5% of its gross income towards religious activities, are also eligible to be registered.

WHY SHOULD I GET REGISTERED?

You should get yourself registered, as it will help your donor to get some relief and they can be motivated for donations.

CAN WE BE REGISTERED:

All institutions are eligible for registration provided they fulfill the following conditions:-

• The Institutions should not spend any income or assets for any purpose other than a charitable purpose.
• The Institution should not be for the benefit of any particular religion, community, or caste.
• The Institution should maintain regular accounts.
• The Institution should be registered under the Societies Registration Act or any other similar welfare Act.
• Their expenses on religious activity should not exceed 5% of total income.
• They should submit their income tax return regularly.

HOW TO GET REGISTERED:

To get your society registered U/s 80G, You have to apply in form no. 10G.

• Form No. 10G requires the following important information:-
• Name and Address of the Institution.
• Name and Address of the office bearers.
• Income tax Particulars.
• Amount of surplus and mode of their investments.

This application should be accomplished with the following documents:-

• Copy of the registration granted U/s 12A or copy of notification issued U/s 10(23) or 12(23C) if any.
• A note on the activities of the institution for the last three years.
• Copy of the audited accounts for the Past three years.
• Memorandum and Rules & Regulations.
• Copy of the registration Certificate of the society.

What happens after submission of your application

It is normally practice that after submission of the above form with the Commissioner of Income Tax, the form is sent by him to your Assessing Officer. He in terms depute an Inspector to visit your place to inspect your books of accounts and other relevant details. Based on such an inspection, a report is sent to the Commissioner by the Assessing Officer. This report is the most important element in the entire process. After submission of such inspection report, an order is received from the Commissioner granting the registration U/s 80G. In case, the Income Tax Authority decides not to allow registration of your Society a notice will be sent indicating the intention of the department and on receipt of which you can submit your comments or objections.

This registration is normally allowed for a period of two to three years. It has been further provided that commissioner will make his decisions within six months of the submission of application.

OBLIGATION AFTER REGISTRATION:

Once your society is registered, there are certain obligations, which is required to be followed.This registration enables donors of your society, a deduction on the amount donated by them to your society. To enable them to claim such exemption, the receipt issued by you should contain reference of approval commissioner order U/s 80G and preferably a copy of such approval should be given to the donors. The society should also submit its regular Income Tax Return in time even though, it is NIL.

RENEWAL OF APPROVAL

As mentioned earlier approval U/S 80G is allowed for a specific period of time. Hence, it is essential that you submit a fresh application requesting for renewal of such approval. Such renewal application should be made at least six months before the expiry of the current approval. This will ensure that there is no disruption in the availability of exemption.

OBLIGATION OR CAUTION BY DONORS:

In case, a donor is giving donation to a society which claim that it is registered U/s 80G, the donors should ensure that:

• He gets a proper receipt for his donation.
• Such receipt indicates that this society is registered U/s 80G and reference number of approval with date of expiry is mentioned on the receipt.
• He should try to obtain a copy of the approval from the society.

In case, these documents are not submitted by him along with the Income Tax Return, his claim of deduction may not be entertained by the Income Tax Department.

CONCLUSION

For the donor of the society Section 80G provides some relief by reducing their tax liability. wherever, society is entitled to registration U/s 80G, they should obtain such registration and intimate the same to the donors.