12a - implications and liabilities

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

12 January 2018 Dear Friends
Is it legally valid to provide a Grant-in-Aid to a Registered Federation of Self Help Groups for which 12A is Applied For and awaited.
Funds are domestic in nature and raised by the Donor Organisation.
Does the Donor organisation, another registered society, attract any Direct or Vicarious liability?
Would the Donor organisation be violating any law, if providing such a Grant and lose any of its registrations (Society registration, 12 A, 80G and such others).
What Statutory/Tax liability would the Recipient organisation attract if it were to receive such a grant towards Capital Equipment Purchase and Start-up Capital for Income Generation Activity (Value Addition/Collective Livelihoods) among its constituent members.
Is it correct to state that such Tax Liability would be attracted only if the Nett Profit (Income less Expenditure) is over Rs.2.50 lakhs in the corresponding Financial Year.
A quick revert would be excellent.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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12 January 2018 As receiver federation is not 12a registered such grant in aid will not be considered as application of funds for donor organisation. Donor organisation will not lose it's registration 12a/80G.
Yes it is correct to state that such Tax Liability would be attracted only if the Nett Profit (Income less Expenditure) is over Rs.2.50 lakhs in the corresponding Financial Year.

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Querist : Anonymous

Querist : Anonymous (Querist)

12 January 2018 Thank you. Need clarity on why such grant transferred would not be treated as "application of funds" for donor organisation and not treatable as grant provided to another charitable association, especially since the Federation is otherwise registered as a Society and only the approval for 12A is awaited. What would be the practical implication of such grant mean when not treated as "application of funds".

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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12 January 2018 12A registration is awaited hence it will not be considered as charitable association. Non application for charitable purposes will attract tax.

Querist : Anonymous

Querist : Anonymous (Querist)

12 January 2018 Nanri. So both the Donor organisation and the Grantee without 12A would be taxed :(
If that is the law, then Is there any threshold limit for considering the Grant Provided as Taxable at the Hands of the Donor Organisation. Say if an Organisation has a total income of 100 lakhs, how much of it can be exempt for tax if not "applied for Purposes". What could be the rate of taxation?
Supporting community based organisations is one of the key purposes of the donor organisation.

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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12 January 2018 85% of income has to be applied for charitable purposes. Then 100% of income is exempt.