Income Not Applied for Charitable Purposes

NGOs are required to apply at least 85 percent of their income toward charitable activities. Any income not applied or accumulated without proper compliance becomes taxable.

• Unutilized income above 15 percent without filing Form 10 becomes taxable
  
• Delay or failure in filing Form 10 for accumulation leads to denial of exemption
  
• Misuse or diversion of funds outside charitable purposes attracts full taxation
  
• Accumulated funds not used within the stipulated time are taxable
  
• Any part of income applied for personal or private benefit loses exemption

Anonymous Donations

Anonymous donations are taxed under Section 115BBC of the Income Tax Act. Only a basic exemption limit applies beyond which such donations are taxed at a higher rate.

• Donations without identity and PAN of donors are treated as anonymous
  
• Taxable at a flat rate of 30 percent under special provisions
  
• Permissible limit is up to 5 percent of total donations or one lakh rupees
  
• Names and addresses must be maintained for all contributors
  
• Religious trusts are generally exempt from this provision

Income from Business Activities

NGOs may undertake business activities related to their objectives, but income from unrelated commercial activities is taxable.

• Incidental business income must be recorded separately and fully disclosed
  
• Business must be carried out in course of actual charitable objectives
  
• Income from unrelated trade or commerce above the limit is taxable
  
• Exceeding the threshold under Section 2(15) removes exemption eligibility
  
• Maintain separate books for such income to claim permissible exemption

Capital Gains Income

Capital gains earned by NGOs may be taxable unless the proceeds are fully reinvested in charitable assets. Timely application is critical for exemption.

• Long-term and short-term capital gains are taxable under normal provisions
  
• Exemption available under Section 11(1A) if reinvested in similar assets
  
• Must be utilized within the financial year to avoid tax
  
• Gains from sale of fixed assets must be used for new charitable assets
  
• Failure to reinvest the net consideration attracts capital gains tax

Income from Investments in Violation of Section 11(5)

NGOs are required to invest their funds only in specified modes under Section 11(5). Income from investments in prohibited modes becomes fully taxable.

• Investments in equity shares, unsecured loans, or non-notified bonds are not allowed
  
• Income from such unauthorized sources is not eligible for exemption
  
• Trust must rectify such investments to avoid future disqualification
  
• Fixed deposits, savings accounts, and government bonds are permissible
  
• Any interest or return from prohibited investment is added to taxable income

Donations Received for Corpus without Specific Direction

Corpus donations are exempt if supported by written direction from the donor. Without such direction, they may be treated as general income and taxed if not utilized properly.

• Corpus donation must carry a specific written instruction for capital fund
  
• Otherwise treated as voluntary contribution subject to 85 percent application rule
  
• Improper documentation may lead to classification as taxable general donation
  
• Separate disclosure of corpus and general funds is necessary in financials
  
• Corpus donations should be invested in modes prescribed under Section 11(5)

Other Miscellaneous Taxable Receipts

Certain other receipts may be taxed depending on their nature and treatment. These include penalties, forfeitures, or income from property not used for charitable purposes.

• Rent from property not used for charitable work is considered taxable
  
• Penalties collected without charitable application are not exempt
  
• Consultancy fees earned outside core objectives attract tax liability
  
• Sponsorship or event income not linked to education or relief may be taxed
  
• Dividend or interest from non-approved sources is also taxable under law