“WHETHER RETURN FILING MANDATORY FOR CHARITABLE TRUST/ SCHOOL & COLLEGES?”


TAX TALK-17.09.2012-THE HITAVADA
TAX TALK
BY CA. NARESH JAKHOTIA (Chartered Accountant)
“WHETHER RETURN FILING MANDATORY FOR CHARITABLE TRUST/ SCHOOL & COLLEGES?”
Query 1]
I have a few queries regarding the society and schools. Kindly spare some time to answer them:
1.      Whether the charitable societies registered u/s 12A of the I.T.Act-1961 are required to file tax return even if their income is below the exemption limit?
2.      Which I.T. Return Form is to be used for such societies? Form No. 5 or Form No.7?
3.      When is audit required to be done in case of societies for I.T. Purposes?
4.      Whether schools and colleges are required to file income tax return even if their income is below the exemption limit? Which return form is required in their case? Form No. 5 or Form No.7?
5.      Are schools and colleges required to get themselves registered u/s 12A of I.T. Act? [jyoti_ag@sify.com]
Opinion:
1.      If the total income of the charitable trust (without claiming deduction u/s 11, 12 & 13A) exceeds the maximum amount not chargeable to tax (i.e., Rs. 1.80 Lacs for the FY 2011-12 & Rs. 2.00 Lacs for the FY 2012-13) then filing of the return by the trust is mandatory. The filing will be mandatory even if the trust income is exempt [Lala Gopi Mal Kuthiala Trust Vs. ITO (1962) 46 ITR 436 (Punj)]. The return is to be filed as per the provisions of section 139(4A) of the I.T. Act-1961.
2.      For the trust/ organization/ AOP/ Institutions claiming deduction u/s 11, return of income has to be filed in ITR-7. The return cannot be filed electronically. It has to be filed manually & have to enclose all relevant papers and details with the I.T. Return including copies of Audited Accounts, TDS Certificates etc.
3.      Under the Income Tax Act, the charitable trust/institutions with total income exceeding the maximum amount which is not chargeable to income tax are required to get the books of accounts audited. The ‘income’ for the purposes of filing the return should be computed without giving effect to the provisions of sections 11 and 12 of the Act. Such returns are to be filed with the Income-Tax Officer or the Assessing Officer under whose local jurisdiction they fall.
4.      All the educational institutions shall be required to file the income tax return mandatorily if its total income exceeds the maximum amount not chargeable to tax. [Section 139(4C)]
5.      Even though on many occasions, income of schools/colleges are exempt u/s 10(23C), even then they may get themselves registered u/s 12A of the Income Tax Act-1961.

Query 2]
I want to enquire about interest exemption in case of second property. I had purchased a property in the year 2007 in my name, financed from the bank, in which I am presently staying since the day of purchase. I am already availing the exemption of interest component on this property. Now, I have added another property a month back jointly with my wife, her name being the first in the ownership. My wife is employed in a college and is income tax assessee. She falls in the 10% bracket of Income tax calculation whereas I fall in 30% Income Tax calculation. The second property is also financed from bank. My questions are
a)     Can I avail 100% tax exemption as far as interest component of second home is considered from my salary including the previous home’s tax component declaring the second property as deemed rented since I fall in 30% category?
b)     Do I have to make an agreement in this regard?
c)     Can the ratio of interest be any thing else to suit the assessee's requirement?
The EMI is being deposited from my salary account. [tiwarianimesh@yahoo.com.au, Bhilai]
Opinion:
1.      It is not very explicit from your query as to who is the actual owner in the jointly owned/purchased new house property. Tax planning is a valid tool to plan one’s affair in such a manner that it reduces the tax bill. But, at the same time, one needs to be cautious that it doesn’t result in tax evasion. In your case, you have already purchased the flat and now you are planning for the tax implications on this flat.
2.      The fact of ownership is not very clear on the basis of information/data provided in the query. There are three probabilities as under:
a] The flat is owned by you and the name of wife is incorporated for the name sake.
b] The flat is owned by your wife and your name is incorporated for the name sake.
c] The flat is jointly owned by both of you.
In day to day life, many tax payers may be facing the situation like this. For the overall benefit of tax readers, I am covering the tax implications in all the three probabilities.
3.      The flat is owned by you and the name of wife is incorporated for the name sake.
In this case, you would be treated as the sole owner of the house property only. Generally, the tax treatment of the second house property is as under:
a] The income from house property is taxable on the basis of its “Annual Value”. The term “Annual value” is elaborated at point No. (e) hereunder. The tax implication / housing loan benefit for the second house property is not similar/ same as applicable to the first house
property. The second house property has a different tax treatment under the Income Tax Act-1961.
b] One house used by the tax payer for his/her own residence is exempt from tax as its annual value is treated as Nil.
c] Where the assessee owns only one house property and it cannot actually be occupied by him because it is situated at a place other than a place where he is employed or carries on business or profession, in such a case also the annual value of the property is taken as Nil provided the property is not actually let out.
d] If taxpayers have two or more houses which are used for own residence, then assessee have the option to choose one of the house (according to his own choice) as self-occupied house, for which an assessee would like to get an exemption from tax and its annual value will be considered as Nil. The second house (or other houses) shall be deemed to have been let out [whether not actually let out].
e] What is Annual Value of house property and how it is determined?
The annual value means the amount for which the property might reasonably be expected to be let out from year to year. However, if the actual rent received or receivable in respect of any let out property is higher, it shall be treated as its Annual Value. The annual value is always taken to be NIL in case of one self-occupied property.
f] How to calculate annual value/taxable value of property:
Annual value of property is considered as higher of the following:
(i) Actual rent received or receivable in a year;
(ii) Reasonable expected rent of the property.
[ The reasonable expected rent is deemed to be the sum for which the property might reasonable be expected to be let out from year to year and is normally higher of  (a) municipal value; (b) fair rent. However, if the property is covered by a Rent Control Act, then the amount so computed cannot exceed the Standard Rent determinable under the Rent Control Act.]
As mentioned earlier, the assessee has the option to choose only one house as self-occupied property. Rest of property is assessable to income tax on the basis of its annual value.
g] Deductions:
From the annual value, the following deductions are available under the Income Tax Act: -
i] Municipal Tax paid.
ii] 30% of the net annual value of the house property towards Repair & Maintenance charges (Deduction is fixed @ 30% whether assessee incurs more or less amount on repair and maintenance of the house).
iii] Actual Interest paid on housing loan whether house is actually let out or is deemed to be let-out.
iv] For self-occupied property, maximum interest on housing loan is restricted to Rs. 1,50,000 p.a., subject to certain other stipulations.

h] Effectively, if Assessee owns more than one house property & is kept for own use,
i] one house property, as per the choice of the Assessee, shall be treated as self occupied house property and the annual value shall be treated as Nil.
ii] Other house property shall be deemed to have been let out and the tax is payable on notional rent as the property is deemed to have been let out and is taxable on the basis elaborated above. In respect of such deemed let out house property, one can claim interest as deduction u/s 24(b) without any monetary limit. However, for the second house property, no deduction is available for repayment towards the principal portion of housing loan under section 80C as clause ( xviii) to section 80C of the I T Act reads as under: -
"(xviii) for the purposes of purchase or construction of ‘ a’ residential house property the income from .....".
4.      The flat is owned by your wife and your name is incorporated for the name sake:
In such case, wife alone would be treated as the owner. If this is the only house property, then she can claim the deduction u/s 24(b) towards Interest on housing loan & u/s 80C towards repayment of the principal portion of the housing loan, subject to the repayment of the same by her. Neither you would be entitled for any deduction u/s 24(b) or u/s 80C in such case nor would the income be added in your income on the basis of deeming fiction in such case.
5.      The flat is jointly owned by both of you:
a] In such case, the tax treatment in their Individual hands would be as per Point No. 3 & 4 elaborated above in the ratio of their share in the ownership & Loans.
b] Unless & until anything contrary is there to prove otherwise, the joint owners are presumed to be equal owners in the property & Loan (i.e., 50:50 may be in your case).



Comments

  1. Please advice : whether charitable trust created before 1961 require to obtain registration u/s 12A to claim exemption.

    ReplyDelete
  2. We are very much impressed of your blog. We are also in the same way to provide the immense services for different disabilities persons and children by the name of www.idlfoundation.org

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  3. Thanks for sharing the informative post with us. Really liked the useful information on Online Income Tax Return.

    ReplyDelete
  4. Which form no. required for Unregistered trust income tax return.
    file return using ITR 7. Notice received for claiming exemption u/s 11
    What to do and how to file corrected return

    ReplyDelete
  5. Which form no. required for Unregistered trust income tax return.
    file return using ITR 7. Notice received for claiming exemption u/s 11
    What to do and how to file corrected return

    ReplyDelete
  6. Which form no. required for Unregistered trust income tax return.
    file return using ITR 7. Notice received for claiming exemption u/s 11
    What to do and how to file corrected return

    ReplyDelete

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