22 February 2013
Procedures of Formation: Charitable Trust : It contains information on:
i. Name(s) of the author(s)/settlor(s) of the trust ii. Name(s) of trustee(s) iii. Name(s) if any, of beneficiary including public at large iv. Name by which trust shall be known v. Name where principal and/or other offices shall be situated vi. Property that shall devolve upon trustee(s) under trust for benefit of beneficiary/ies vii. Intention to divest trust property upon trustee(s)
The objects of the trust: i. For appointment, removal or replacement of trustee ii. Making them understand their rights, duties and powers iii. Rights and duties of beneficiary/ies
A charitable trust is not required to obtain registration under the Indian Registration Act.
Society: Society is defined as company/association of persons who are united together through mutual consent for deliberating/determining/acting jointly for same common purpose. It needs a minimum of seven persons to be eligible to enter into contract for formation of society and needs to get registered under the Societies Registration Act, 1860.
Some advantages of society formation include:
It provides a corporate appearance to organization It provides greater flexibility as its easier for amending memorandum and bye laws of society than of a trust where all terms are strictly manifested in trust deed.
Society Inception:
Formation of ‘Society’ needs procedural formalities like: Memorandum of Association Rules and Regulations
Company Formation: Company is formed under Section 25 of Company's Act and works as an association for purposes of:
Promoting science, religion, commerce, art Promoting charity to any other useful object
A ‘Company’ may be formed/incorporated without addition of word "Limited" or "Private Limited" and on completion of all formalities, the formation is certified through certificate of incorporation from the date company came into existence. An association that has already registered as company can also apply for license u/s 25.
INCOME TAX EXEMPTION FOR NGO TRUSTS: Under section 11(1)(a) to (c), income that is derived from property held under trust is exempt if following conditions are met: a) Property is held under trust wholly for charitable/religious purposes b) Income from such properties are applied to charitable/religious purposes c) Income should be applied in India d) At least 85% of income derived from properties held under trust is applied to charitable or religious causes in relevant previous year for claiming full tax exemption.
Note :
Here, assessed needs to apply for registration in Form No. 10A in duplicate before expiry of 1 year from the date of creation of trust. Any voluntary contribution received by a trust or institution is exempt if (a) the trust is created wholly for charitable purposes and (b) contribution is not made with a specific direction that it shall form part of the corpus of the trust.
SOCIETY: ‘Societies’ are taxable in status of AOP where different tax rates are applicable to income of AOP in different circumstances:
Individual shares of members in AOP are not determinate - i. Where total income of any member of AOP is taxable at rate higher than maximum marginal rate-Rate of tax is such higher rate ii. Otherwise-30%
Individual shares of members in AOP are determinate – i. If total income of any member is not higher than Rs 50000/- (excluding share from AOP) ii. No member is taxable higher than 30% iii. Rate of tax on total income of AOP is rate applicable to individuals and if any member is taxed higher than 30%, then – (a) Tax on portion of total income of AOP that is relatable to share of such member is levied at such rate higher than 30% (b) tax on balance total income will be 30%.
TAX EXEMPTION FOR NOTIFIED CHARITABLE SOCIETIES U/s 10(23C) (iv) and (v) The income generated by any institution established for charitable purposes is exempt from taxation. For getting exemption under defined clauses, following requirements need to be completed: i. Making an application in Form No. 56 ii. Applying income/accumulating it for application, wholly & exclusively to its objects iii. Notice of accumulation u/s 11(2) provided to assessing officer in Form No. 10
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