The Income Tax Act of 1961 is the main legislation that regulates the levying, management, collection, and recovery of income tax in India. For easy compliance with its provisions, the Act provides for the use of several prescribed forms for diverse purposes such as income tax returns, tax deductions, statements, declarations, assessments, appeals, and refunds. These forms are standardized tools for taxpayers and the Income Tax Department to enable proper reporting, transparency, and proper administration.
Every form mentioned under the Income Tax Act, 1961, is prepared for a specific category of person or transaction. For example, the Income Tax Return (ITR) forms from ITR-1 to ITR-7 are prepared for various types of taxpayers, including individuals, Hindu Undivided Families (HUFs), businesses, companies, and trusts, depending upon the sources of income and financial transactions. Similarly, forms such as Form 16, Form 26AS, and Form 10E serve certain purposes, such as to act as proof of tax deducted at source (TDS), to deliver statements of tax credit, and to provide relief under Section 89, respectively.
Use of these forms encourages uniformity in compliance, in addition to facilitating the process of tax assessment and refunds. A majority of these forms are now filed online through the official income tax portal, which aids digitalisation as well as easy compliance by taxpayers and professionals alike.
An understanding of the different types under the Income Tax Act of 1961 is critical for the discharge of legal liability, avoiding penalties, and facilitating good and honest financial reporting. It is an aspect of being a responsible citizen and contributes to economic growth in the country.
What is Form 9A under the Income Tax Act, 1961?
Form 9A, under the Income Tax Act of 1961, is a necessary form used by charitable trusts and institutions that are exempt from tax under Section 11 of the Act. This section allows exemption for income arising from property held in trust for religious or charitable purposes, on condition that such income is applied within the specified limits and within the provided time limit for the purposes mentioned.
As stipulated under Section 11(1), 85% of the income must be expended within the financial year. Nevertheless, if the trust cannot utilise the income within the same financial year owing to events beyond its control, it is allowed to reserve or accumulate the unspent amount. To avail of this relief, the institution or trust needs to file Form 9A, stating its desire to spend the unspent income in the subsequent year or years, within the stipulated limits set by the law.
Purpose of Form 9A:
- To inform the Income Tax Department of the trust’s decision to delay the application of income.
- To lawfully ensure the exemption of income that was not expended in the current year but will be spent in future years.
- To guarantee compliance with Section 11(2) of the Income Tax Act regarding the accumulation of income above the stipulated amount.
Objectives of Form 9A:
- Transparency: Helps tax authorities track the use of income by charitable organisations.
- Flexibility: Provides legitimate charitable institutions the flexibility to plan their spending over multiple years.
- Compliance: Ensures compliance with the law and avoids cancellation of exemption on account of delayed application of income.
- Documentation: Serves as a formal declaration and document for future authentication in case of audit or examination.
Form 9A is to be furnished before the due date for furnishing the income tax return under Section 139(1).
What is Form 10 under the Income Tax Act,1961?
Form 10, under the provisions of the Income Tax Act of 1961, is used by charitable or religious trusts and institutions to accumulate or keep back income for charitable or religious purposes other than in the immediate financial year, under Section 11(2) of the Act.
While Section 11(1) permits exemption from tax on income used for charitable or religious purposes (though at least 85% of the total income has to be spent during the same year), Section 11(2) allows trusts to carry forward the unused amount of income for a maximum period of five years subject to certain conditions. To enable this, the trust has to fill up Form 10, stating the reason for retaining the income and the time period for which it will be used.
Purpose of Form 10:
- To officially notify the Income Tax Department of the trust’s intention to keep income in reserve rather than spending it in the current financial year.
- To continue the tax exemption on the income that is kept for future usage.
- To identify the purpose and duration of accumulation, to ensure transparency as well as accountability in the process.
Objectives of Form 10:
- Compliance: Ensures compliance with the requirements of Section 11(2), which mandate a declaration of accumulation in a specific format.
- Clarity: Expresses the purpose for which the funds are to be accumulated clearly, and hence avoids misuse or misapplication.
- Regulatory Supervision: Enables the tax authorities to verify if the amount was used as per the stated purpose within the given time limit.
- Flexibility for Trusts: Offers trusts and organisations the facility to plan large-scale or long-term philanthropic activities by averaging incomes over a period of years.
Form 10 should be filed before the due date of filing the income tax return under Section 139(1) to be eligible for exemption.
Difference Between Form 9A and Form 10
The Income Tax Act of 1961, Section 11, allows charitable and religious trusts or institutions to claim an exemption on income, subject to their being applied for charitable or religious purposes. But where such trusts are not in a position to apply 85% of their income within the same financial year, the Act stipulates certain options and requirements of procedure in regard to carry forward or accumulation of this unused income. This is where Forms 9A and 10 come into play. While both forms deal with the treatment of unused income, they serve different purposes and are governed by different provisions of the Act.
Form 9A is a short-term compliance vehicle for trusts that have unavoidable delays in applying their income, while Form 10 is a long-term planning tool for the accumulation of income for particular purposes. Both forms secure the maintenance of exemption privileges, but they address different financial plans and operating requirements of tax-exempt organisations. The timely and accurate filing of these forms ensures the continuity of tax-exempt status and the display of transparent financial planning.
1. Nature of the Application
- Form 9A allows for a temporary postponement of application to the following fiscal year.
- Form 10 provides for the rolling over of income over a five-year period.
2. Regulating Sections and Objective
- Form 9A is filed under Section 11(1) (Explanation 2) of the Income Tax Act, 1961. The form is used when the trust wishes to use any unutilised income in the next year for reasonable grounds, e.g., failure to receive income or other unavoidable reasons.
- Form 10 is filed under Section 11(2). It is used when the trust wants to build up income for a maximum period of five years for a specific charitable or religious object in the future.
3. Reason for Filing
- Form 9A is applicable in a case where the 85% application threshold is not met during the current year because income is not received or for other valid reasons that are not within the control of the trust.
- Form 10 is used when a trust deliberately lets income accumulate for an intended future purpose, for example, the construction of a hospital or school.
4. Filing Deadline
- As per Section 139(1), Form 9A should be filed before the due date of filing the income tax return.
- Form 10 should be filed within the specified date as per Section 139(1). But the purpose and tenure of accumulation must be mentioned (with a limit of 5 years).
5. Conditions to be Fulfilled Before Filing
- In case of Form 9A, there are no specific investment conditions required, only that the unspent revenue has to be utilised within the next year.
- In case of Form 10, such accumulated income is to be invested in the manner required under Section 11(5). The article has to be utilised for the specified purpose within a period of five years.
6. Consequences of Non-compliance with Filing Requirements
- Default in adhering to Form 9A results in the loss of the tax exemption under Section 11 for unused income. All unused income during the financial year is deemed taxable income for the year, which can attract higher tax charges as well as potential penalties for the institution or trust.
- Non-compliance with Form 10 means a denial of exemption for accumulated income as per Section 11(2). Unreported or miscalculated income is tax-exempt in its entirety in the year it is earned, thus increasing the tax liability on the trust or institution and risking it to fines.
7. Applicability
- Form 9A is availed when a charity, religious trust, or institution is unable to utilise 85% of its income in a fiscal year on account of non-receipt of money or other unforeseen circumstances. The form allows the trust to carry forward the unspent income to the next fiscal year. There is no need to state the purpose for which the amount is to be used, and there is no need to use the money in specified ways. The form is required to be filed by the due date for filing the income tax return as provided under Section 139(1).
- Form 10 can be used when a trust will voluntarily build up funds for a specific charity or religious purpose over a period of no more than five years. In this scenario, the trust must set out the accumulation objective clearly and put the accumulated assets into the instruments or modes specified in Section 11(5) of the Act. Just like Form 9A, Form 10 should also be filed prior to the due date for submitting the return as per Section 139(1).
Form 9A is used for temporary deferment because of the occurrence of certain unexpected events, whereas Form 10 is used for long-term accumulation with special goals and stricter purpose and investment requirements.
Conclusion
Forms 9A and 10 of the Income Tax Act of 1961 are compliance tools of paramount importance for religious and charitable trusts seeking tax relief on unused income.
While Form 9A allows temporary postponement of application of income to the following year in cases of unforeseen circumstances, Form 10 allows longer-term accumulation for stated purposes over a period of five years.
The prompt and accurate furnishing of these documents ensures continuous availability of tax benefits, encourages transparency, and confirms compliance with legal stipulations, allowing trusts to manage their finances effectively while serving charitable or religious purposes.
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