Educational institutions and charitable trusts are responsible for providing assistance to many sections of society in India. Several benefits that the government provides for such organisations' work must be filed on time to qualify for them. To stay legal, educational institutions must maintain Form 10BB of the Income Tax Act. In this article, we will take a look at Form 10BB, why it is necessary, and Form 10 BB’s applicability.
What Is a Charitable Purpose as per the Income Tax Laws?
Taxation of charitable institutions and trusts works as per the laws prescribed in Sections 13, 12AA, 12A, 12, and 11 of the Income Tax Act. As per Sub-section 15 of Section 2, a charitable purpose includes any of the following;
- Relief to poor
- Medical relief
- Advancement of public utility, wherein receipts do not exceed 20% of total receipts accepted by the trust
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Since the word ‘includes’ refers to a broader definition, individuals must liberally interpret the law and add actions that follow the same line of thought. For instance, the act of publishing books, reference materials, and research papers of professional interest may also be a charitable purpose. Also, such organizations must abide by the following rules and regulations.
- The general public serves as the trust’s beneficiaries and will face no discrimination based on caste, creed, religion, or sex.
- Any change to the object clause requires the prior approval of the concerned income tax authorities.
- Founders or other related parties cannot receive any unique benefits from the trust, according to Section 80TTB
- When the trust terminates, all assets of the trust are to be transferred to another registered trust that shares the same objectives as the trust that dissolved.
- Irrevocable nature of trusts.
Taxation of Charitable Trusts and Educational Institutions
A founder and their trustees may form a trust after drafting and registering a deed with the registrar of trusts. The application for registration occurs via the filing of Form 10A, and if the trust wishes to avail of benefits provided by 80G, it must file Form 10G in triplicate. Institutions must have registered under Section 12AA in order to be eligible for the benefits offered by SEC 80P and 80B of the Income Tax Act.
Further, the trust must undertake only activities for which it has received permission from the Income Tax Department. Additionally, if funds collected exceed ₹ 2,50,000, the trustor institution is required to submit an audit report via Form 10B.
Documents Required to Register a Charitable Trust or Educational Institution in India
- Registration certificate
- Trust deed
- A letter of no objection from the landlord (if the premises are rented)
- PAN card
- Electricity/water/gas/telephone/internet bill/property tax receipt
- Evidence of welfare activities conducted
- The last three years’ progress report
- Additionally, Financial statements and Income tax returns for the last three years
- List of donors, their addresses, and PAN details
- List of trustee members, along with their photographs, contact details, and CVs
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Form 10B Vs Form 10BB of the Income Tax Act
While Form 10B works as per Rule 17B of Section 12AB, Form No 10BB works as per Rule 16CC under Section 10. Similarly, while the former helps with auditing and regulating charitable and religious trusts, Form 10BB helps regulate educational institutions. Applicants must file both these forms along with other returns required from such institutions.
Moreover, Form 10BB of the Income Tax Act works as an audit report for universities, other educational institutions, and medical institutions.
Form 10BB Applicability
Education institutions can claim an exemption from the Income tax return for NRI under Section 10 of the Income Tax Act using Form 10BB. If your trust or educational institutions are registered under either Section 12A or 12AA, it can claim exceptions only under Sections 10(1) and 10(23C).
However, to claim this exemption, organizations must file a return via Form ITR-7 and an audit report via Form 10BB. Applicants must select the appropriate sub-clause of Section 10 from the drop-down list for the same and then fill all their personal details in Section A. Section B contains details regarding the exemption claimed and aggregate annual receipts received.
Need for Form 10BB of the Income Tax Act
Any educational or institution, university, hospital, or trust that claims exemption from the IT department will have to get their accounts audited if their annual income exceeds a benchmark. As per the Taxation Laws (Amendment) Act, 2006 – https://www.cbic.gov.in/resources//htdocs-cbec/income.pdf, all organizations that enjoy exemptions under Section 10(23C) must submit an Audit report via Form No 10BB. Moreover, Form 10BB is applicable for all transactions made from Financial Year 2006 – 2007 onwards. The Central Board of Direct Taxes pardoned organizations that submitted Form 10BB after a significant delay in recent years. Such delays were for filings made for the Assessment Years 2016-2017 and 2017-2018.
Details required for Form 10BB Income Tax Filing
- Balance sheet
- Income and expenditure statement
- Profit and loss account
Part A – General Details
- Name of the institution
- Official address
- Permanent Account Number
- Assessment Year
- Concerned sub-clause of Section 10(23C)
- Registration number
- Date of approval of the institution
Part B – Income Application
- Nature of activities performed by the institution
- Total income earned and amount applied during the year to meet the trust’s objectives
- Income accumulated to meet the trust’s objectives, without exceeding 15% of total income
- Whether income was used for other purposes, and if so details regarding such usage
- Any amount exceeding 15% of the institution’s total income was accumulated
Part C – Other Information
- Whether anyone invested any funds in other ways, and if so details regarding such investments
- Details regarding the profits and gains earned by the institution
- Whether the trust paid any accumulated income to another trust
- Moreover, whether any voluntary contribution of a different kind was received last year
- Whether the institution received any anonymous donations last year
Hope , we have provided sufficient information. If any doubt or help regarding Form 10 BB , Please reach out to our team or leave a comment below.