Monday, 21 May 2018

NGOs should exercise due-diligence while filing tax returns this year.

Readers may be aware that for Assessment Year 2018-19 (Financial Year 2017-18) the Income tax Return in Form ITR-7 has been substantially revised. 
In order to claim tax exemption for the fiscal year 2017-18, all mandatory criteria laid down by the tax authorities must be fulfilled and the Return should be carefully filled with all the required details. 
We recommend that this function is not left to just your chartered accountant or statutory auditor. 
The Governing Board and Management of the trust or institution should also take active interest in ensuring that full and accurate information is submitted.
Please ensure the following compliance:

1. The return of income in the prescribed Form ITR-7 has to be e-filed on before the due date mentioned under section 139(1) (i.e. 30th September).

2. Audit report in Form 10 B also should be e-filed along with the above stated return.

3. To claim benefit of ‘deemed application’ under Section 11(1), Form 9 A has to be e-filed before due date mentioned under Section 139(1) (i.e. 30th September).
This form should be signed by a trustee or principal officer of the trust.

What is “Deemed application u/s 11(1) and when e-filing Form 9A is necessary?

According to Explanation 2 to Section 11(1), if in the previous year, a charitable organization is not able to utilize 85% of its income, due to the fact that such income was accrued but not received in the previous year or for any other reason (e.g. received towards the end of the fiscal year) then the organization has an option to apply such income in the year, immediately following the year of accrual of income.

4. To claim benefit of accumulation under u/s 11(2), Form 10 has to be e-filed before due date mentioned under Section 139(1) (i.e. 30th September).
This form should be signed by a trustee or principal officer of the trust.

Why and when should Form 10 be filed?

If the trust or institution is unable to apply at least eighty five per cent of its income in the previous year it may accumulate or set apart the unspent income for up to a maximum of five years.

In Form 10, the amount, the purpose for which the amount is accumulated or set apart, as also the period of accumulation/setting apart must be stated.

5. If in any of the projects/institutions run by the trust, one of the charitable purpose is "Any other object of general public utility" and the activity is in the nature of trade, commerce or business or service as referred to in the proviso to Section 2(15), then provide the aggregate annual receipts from such activity and its percentage in Schedule Part A.

6. In order to claim exemption under section 11, all incomes must be entered first in Schedule AI.

7. The details of projects/institutions run by the trust and details of registrations or approvals have to be necessarily provided in Schedule Part A.

The latest ITR 7 can be viewed or downloaded at:


Wednesday, 2 May 2018

Global Philanthropy Environment Index

The latest report on the Global Philanthropy Environment Index has been released on April 30, 2018.
Formerly known as the Index of Philanthropic Freedom, this report evaluates 79 economies in 11 regions across five key factors that measure the ease with which philanthropic organizations can operate, both within countries and across borders.
The full report can be downloaded at:
Currently only regional reports are available on the website. However, all country reports will become available on the website over the next couple of weeks.​

India is grouped under Southern and South-eastern Asia.
The ‘Country Expert’ representing India for this study is the Centre for Advancement of Philanthropy through its Chief Executive, Mr. Noshir H. Dadrawala.
To read more, please go to:

The Region
The Southern and Southeast Asian region includes South Asian countries: Nepal, India, and Pakistan, as well as Southeast Asian countries: Myanmar, Vietnam, Thailand, Indonesia, the Philippines, and Singapore.
India, Pakistan, and Nepal are members of the South Asian Association for Regional Cooperation (SAARC) along with other South Asian nations.

Enabling conditions
The enabling conditions for the philanthropic environment are at their best in Singapore and the Philippines, and moderate in India, Indonesia, Pakistan, and Thailand, whereas in the remaining regional economies, the situation is not encouraging. The nearly ideal environment in Singapore is attested to by other sources, as well.

Economies with a rather moderate enabling philanthropic environment are those that are doing very well in some areas, but performing badly on many fronts. For example, India, Pakistan, Indonesia, and Thailand have quite liberal policies regarding the formation of organizations, but there are restrictions in certain areas.

With regard to tax exemptions, all four countries have more or less the same environment. While India and Pakistan perform equally well in allowing tax benefits for donors and receivers, Thailand’s tax policies for receiving charitable donations are quite hampering.

Indonesia applies a completely different policy of tax benefit for donors from the rest of the countries in the region. The tax law does not provide tax credits for individuals, but corporate donors receive 100 percent of tax credits.

Sending cross-border donations is one area that seems to be quite restrictive in many of the economies. India not only links the outflow with approval of the Central Board of Direct Taxes, but also conditions donations to match the interests of India as a country. In Pakistan, though the process and policies are clear, sending cross-border donations is a rarely observed practice due to resource scarcity.

Tuesday, 1 May 2018

MHA’s Latest Notice Regarding Online Annual Returns!

Have you received a Notice from the Ministry of Home Affairs (MHA) by email in your inbox with the subject line: “Non-submission of mandatory Annual Returns from 2011-12 to 2016-17”? 
We, at CAP, just did, this afternoon and of all days, on ‘Labour & Maharashtra Day’ holiday! 
It ruined plans for an afternoon nap. 
But, on a more serious note, those who may have been napping on their FCRA compliance, may have reasons to lose sleep for many more days to come!
However, conversely, unless your association has been delinquent, don’t panic! 
It’s just a general wake-up call for all those registered under FCRA 2010, but, have not yet filed their Annual Returns ONLINE from the fiscal year 2011-12 to 2016-17.

Same Notice also on MHA's Website
Those who regularly visit (and if you don’t, we recommend that you do visit it regularly) may have also seen the same notice at:

3,292 Associations in default
MHA has listed as many as 3, 292 associations in default, though many of them appear to be in default only for the fiscal year 2016-17.

How to check if your association is named?
  • There is no need for you to scan the entire list to see if your association is in this list.
  • On your keyboard, simply click Ctrl and F simultaneously and a search box/window will appear in the right-hand corner. 
  • In this box type either your organization’s name or your FCRA registration number and if your organization is unfortunately on this list it will open on that page with your organization’s name highlighted. 
  • You may then find that on MHA’s system you have not filed returns for either one or more years out of the listed financial years between FY 2010-11 to FY 2016-17.

What next?
If your association is named in the list, your immediate next step should be to log into your FCRA account and file the missing return/s online in Form FC 4. 

Scanned copes of the Income and Expenditure Statement, Receipt and Payment Statement, Balance Sheet etc., must also be uploaded along with the Annual Return.

In case of difficulty …
If your association is faced with any technical difficulty in uploading the Annual Return, please write to

  • In our opinion MHA has provided NGOs registered under FCRA 2010 with yet another opportunity to regularise any irregularity in filing online accounts.
  • Hurry, MHA will review your association’s status 15 days after the date of the Notice issued on 24th April 2018.
  • Lapse on the part of your association to comply may lead to penalty (to compound the offence of late filing of the Annual Return/s) or subsequently, deregistration!

Just about a year ago MHA had provided NGOs with a similar opportunity to file FCRA Returns from FY 2010-11 to 2014-15. 

Sunday, 22 April 2018

MCA strictly regulating CSR compliance

From the ‘Show or Shame’ policy of 2014, the Ministry of Corporate Affairs (MCA) seems to be moving towards ‘Spend or get Spanked’ policy in the year 2018, barely four years after CSR was made mandatory for companies having either Net-worth of INR 500/- crore or more or Turnover of INR 1,000/- crore or more or Net Profit of INR 5 crore or more.

MCA, through Deputy Director and Inspector e-CSPM - CSR has of late been issuing notices to various companies under section 206 of the Indian Companies Act 2013 regarding compliance of provisions of Corporate Social Responsibility (CSR) under section 135 read with Section 134(3)(o) of the Act and the Rules made there-under.  The information asked for by the MCA borders around forensic CSR audit of companies.

Section 135 lays down the following three compliance:
  • Constituting a CSR Committee of the Board
  • CSR Policy as approved by the Board
  • Report on CSR by the Board ensuring that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its CSR Policy.

Section 134(3)(o) requires: “details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year”.

Implement CSR policy
MCA’s focus of inspection appears to be on “implementation” of CSR as per policy developed by the company and it has specifically questioned companies which have not spent the full two per cent of the company’s pre-tax profit for the relevant financial year. It has also asked such companies regarding “measures and efforts taken by the Board of the company to ensure that the prescribed CSR amount is FULLY SPENT for the financial year.”

While CSR activities should be undertaken within the framework of Schedule VII, some companies appear to have named their CSR projects under the head “others”. MCA has asked companies for details of all projects listed under the head “others”

Detailed CSR compliance inspection
In some cases, it would appear as if MCA is conducting a detailed forensic CSR audit asking for information such as:
  • Date when the CSR Committee was constituted;
  • CSR Policy of the company along with extracts of resolutions passed by the Board for adopting the same;
  • Details of the meetings held by the CSR committee during the relevant financial year and extracts of the minutes of such meetings;
  • If prescribed amount of two per cent as per section 135(5) of the Act is not spent, “furnish legally demonstrable specific reasons”;
  • Proportion of “administrative overheads” while implementing the total CSR expenditure during each financial year;
  • Details of the implementing agencies (trust, society or section 8 company with track record of at least three years of undertaking such activities) engaged by the company with the names and addresses of such implementing agencies.

Other information sought by the MCA:
  • Calculation of net profits computed u/s 198 of the Act;
  • Average net profits of the company for the three immediately preceding financial years as computed u/s 198 of the Indian Companies Act 2013;
  • Details of members of the CSR Committee;
  • Name and contact details (current address, email and Director Identification Number) of the Board of the company;
  • Details of the projects undertaken by the company as CSR activity as per disclosure under annual return of CSR as provided under Companies (CSR) Rules 2014.

Contribution to central government funds
MCA has also been asking companies to furnish certified true copy of bank statements showing transfer of money by way of “contribution to Prime Minister Relief Fund / Swatch Bharat Kosh / Clean Ganga Fund / any other central government fund”. 

The question is whether MCA is simply confirming whether such contribution was really made by the companies as stated in their report or subtly asking companies who have been under spending, as to why they have not contributed to these funds!

Companies which receive such notices and fail to furnish the required information shall stand liable for penal action.

Rise in CSR spend
The Annual CSR Tracker compiled by the Confederation of Indian Industries (CII) reveals that the number of Bombay Stock Exchange BSE-listed companies required to fulfil their CSR mandate has increased to 1,522 during Financial year 2016-17 from 1,270 in Financial Year 2015-16 and 1,181 during Financial Year 2014-15.

A total of 1,522 BSE-listed companies spent INR 8,897 crore, or ninety-two per cent of the budgeted INR 9,680 crore on CSR activities in the fiscal year 2016-17, an increase of about nine per cent from the previous year.

The survey suggests a substantial increase in CSR spends as against FY 2015-16 in the areas of environment and ecology (66 per cent), gender equality (115 per cent), national heritage (153 per cent) and sports development (192 per cent). However, there was no CSR spend in the areas of technology incubation or slum development by a single public-sector enterprise (PSE) in FY 2016-17. Moreover, slum development did not receive any funds from state-owned enterprises in the previous year either.

The overall increase in CSR spends in FY 2016-17 as compared to the previous year is 8.70 per cent. Development areas that show maximum increase in the CSR spends as against FY 2015-16 are sports development, national heritage, gender equality and environment.

There was a noteworthy increase in the CSR spend with respect to armed forces veterans in FY 2016-17 amounting to INR 33 crore in comparison to FY 2015-16, where less than INR 1 crore was spent, according to the report. 

FY 2016-17 also registered a huge drop in the contribution made to the Prime Minister's Relief Fund as compared to the previous fiscal year where 79 companies contributed INR 80.55 crore and 120 companies contributed INR 107.43 crore in 2014-15.

"Alignment of business strategy is slowly but surely happening. Companies have begun to disclose impact data, which goes beyond the requirements of the legislation. This is an indicator of improved transparency though quality of data leaves much to be desired," CII Director General Chandrajit Banerjee states in the report.

Across all three financial years 2014-15, 2015-16 and 2016-17, the industrialized states of Maharashtra, Gujarat and Tamil Nadu remained favoured destinations for CSR investment. It appears that over a span of three years, about 40 per cent of the companies preferred investing in one state / Union Territory and about 4 per cent in more than 10 states / Union Territories. Moreover, Northeast India received investment from 35 per cent of the Public Sector Enterprises and 65 per cent of the non-Public Sector Enterprises.

Out of the 32 industry categories, the major contributors to CSR spends in all three financial years are oil and gas; software and services; utilities; and metals and mining. Big increases in CSR spends in FY 2016-17 in comparison to FY 2014-15 are reported in automobiles and auto components, construction materials, consumer durables, coal and other financial services, according to the CII report!


Sunday, 15 April 2018

Companies must report CSR appropriation in ITR 6

  • A new column has been inserted in ITR Form 6 to provide details of apportionment made by companies from the net profit of the company for CSR activities. 
  • Expenditure on CSR related activities are to be incurred mandatory under the Indian Companies Act, 2013 by certain companies and these expenditures are not deductible under section 37(1) of the Income-tax Act, 1961. 
  • All the companies which are covered under Section 135 of Companies Act 2013 are required to disclose CSR expenditure during the year in its Board's Annual Report and now also in the new Income tax Return Form No. 6.
New ITR Forms
The Central Board of Direct Taxes (CBDT) has notified income tax return (ITR) forms applicable to Assessment Year 2018-19. These ITR forms will be applicable to filing of income tax return in respect of income earned from April 1, 2017 to March 31, 2018. The new forms incorporate the changes made by the Finance Act, 2017 in the Income Tax Act, 1961.

The new ITR forms have shifted the entire onus on the taxpayers to prove their claim for deductions, expenses or exemptions. This year, the ITR forms seek a lot of new information from taxpayers. Reporting CSR appropriations is a new inclusion.

Tax deduction
While CSR expenditure is not a ‘business write-off’ or a deductible business expenditure under section 37(1) of the Income-tax Act, 1961, CSR contributions made by the company to the company’s own Foundation having 80G certificate or to an NGO (Trust, Society or Section 8 Company) having 80G certificate would be 50% tax deductible. 

Contribution to the Prime Ministers National Relief Fund would be 100% tax deductible and the easiest form of CSR activity.

Mandatory for whom?
All companies (Public, Private or Foreign) registered under the Indian Companies Act having either Net-worth of Rs. 500/- crore or more or Turnover of Rs. 1,000/- crore or more or Net Profit of Rs. 5 crore or more, are required u/s 135 of the Indian Companies Act 2013 to apart from constituting a CSR Committee of the Board and formulate a CSR Policy for the company, to ensure that the company spends, in every financial year, at least two per cent of the average net profits of the company made during the three immediately preceding financial years, in pursuance of its CSR Policy.