Under certain sections of the Income Tax Act of 1961, religious and charitable organizations are entitled to income exemptions using Form 10. Every organization wanting to take advantage of these exemptions must be familiar with Form 10.
Overview of Form 10
Form 10 comprises an application form to be presented by charitable or religious institutions and trusts to assert tax exemption on income sourced from property. Such income can be kept in the name of the trust if the institution or trust wishes to amass over 15% of the income sourced from the property, based on specific conditions.
Crucial Purposes of Form 10
Accumulation of Income: Section 11 of the Income Tax Act permits income accumulation or keeping separate 15% of the income sourced from the property kept under the trust. Nonetheless, if a religious institution desires to retain over 15% of its revenue, it can use it in the future by religious or charitable institutions for charitable or spiritual purposes. In that event, they need to submit Form 10 spelling out the purpose for which it is being collected and the duration, which shall not go beyond 5 years.
Form 10 allows the institution to report its motive to the Income Tax Department. This report enables these organizations to develop a reserve or corpus and utilize it for their goals in the future while still keeping tax-exempt status.
Who is Qualified to File Income Tax Form 10
Any charitable or religious institution or trust in India can submit Form 10 for the following reasons:
- Asserting income tax exemptions under Sections 10(23C), 11 and 12AA of the Income Tax Act.
- Gather or keep apart income for future religious or charitable purposes under the guidelines fixed by the Income Tax Act.
Conditions for Accumulation of Income
For institutions or trusts looking to amass income over 15% annually while looking for exemptions within the Income Tax Act, compliance with these conditions is essential:
- Filing of Form 10 to their Assessing Officer is compulsory.
- Distinctly mention the aim for accumulation.
- Mention the accumulation period, which shall not surpass 5 years.
- The deposition of the stored funds should follow the modes laid out in Section 11(5).
- Submit Form 10 on or prior to the income tax return submission due date.
Crucial Information Needed for Form 10
Form 10 should include the following details:
- Particulars of the institution or trust, including address, name, registration number, PAN, and year of evolution.
- The presentation of the Form should mention the section arising from Section 11(2) (a) or 10(23C) or 11(2) (a) read with 10(21).
- The purpose for which the amount is set aside.
- Sum of accumulation
- Duration of accumulation
- The amount of income amassed in the past, the year of gathering, the amount applied until the earlier year, the amount remaining for application, and the objective for which the sum is set apart or accumulated.
Due Date for Submitting Form 10
According to Section 11 of the Income Tax Act, you should submit Form 10 within a minimum of 2 months prior to the due date for submitting your Income Tax Return. Nevertheless, Circular No.6/2023, dated 24/05/2023, explains that Form 10 submitted prior to the due date of submitting an Income tax return will also be regarded as lawful.
How to File Form 10?
Take these steps for filing Form 10 online:
Step 1: Sign in on the e-filing portal
E-filing login
Step 2: On the dashboard, select ‘e-file’ > ‘Income tax forms’ > ‘File Income Tax Forms’.
File income tax forms
Step 3: Scroll below to choose Form 10. You can also access Form 10 in the search box. Select the ‘File now’ button to proceed to the next step.
Form 10 filing online
Step 4: Choose the Assessment Year for which you are submitting the return. For example, if you are submitting taxes for the income earned in FY 2023-24, then choose AY 2024-25.
Choose AY for Form 10
Step 5: After examining the documents needed to submit the form, select ‘Let’s Get Started’.
Begin submitting Form 10
Step 6: Complete the particulars needed and select Preview, and next, Choose ‘Save’.
Particulars needed for Form 10
Step 7: After reviewing the entire information, ‘Proceed” to e-verify’. You can e-verify either through:
Aadhaar OTP
Electronic Verification Code (EVC)
e-verify
Step 8: After the OTP is entered, select ‘continue’, and Form 10 will be submitted.
Due date For Submitting Form 10
Form 10 of income tax must be submitted a minimum of two months before the deadline for filing an income tax return, according to Section 11 of the Income Tax Act. Circular No. 6/2023 of May 24, 2023, explains that Form 10 deposited before the deadline for income tax return filing would also be acknowledged.
The Fallout of Failure to File Form 10
Absence to file Form 10 of income tax under Indian taxation law can lead to grave consequences. A particular result of this can be taxpayers losing their eligibility to stake a claim for specific deductions or exemptions, which can all lead to a higher taxable income and also tax liability. Moreover, non-filing may draw interest and penalties for non-compliance, likely resulting in future scrutiny by tax authorities. An individual or organization could also encounter legal actions, making it critical to adhere to filing provisions to prevent these repercussions.
Purpose of e-file Form 10 within the IT Act
Under Section 11 of the Act, asserting the exemption, the Institution and Trust subscribed u/s 12AA/ 12AB of the Act would be required to use 85% of its income earned in the related former year, entirely covering the charitable objects for which it was offered the registration.
If the Institution or Trust fails to apply for 85% of its income in the relevant former year and decides to get its income, either in part or in whole, for the application to these objects in the following assessment year, according to the conditions specified, then this income accrued or kept apart will not feature in the total income of these institutions or trusts.
Changes Required in Form 10 within IT Act
The institution/ fund/ trust/ educational institution/ university/ medical institution/ hospital alluded to in sub-clause (iv) (v) (vi) (via) of Section 10(23C) of the Act would possess the freedom to receive the income through application to these objects to which they all were assigned registration in the following assessment year. During the next assessment, this institution or trust would lose its right to apply for 85% of the income obtained in the associated former year.
Provision does not exist to present Form No 10 and grant the resolution of the board via these institutions or trusts marked under Section 10(23C). The same would have assigned an undue benefit to these Institutions/trusts ascribed to in sub-clause (iv) (v) (vi) (via) of Section 10(23C) of the Act. So, to eliminate this disparity and to align such Institution/Trust registered u/s 12AA/ 12AB of the Act, a similar revision was done by including a clarification 3 within sub-clause (a) to section 10(23C) of the Act.
Bottom Line
Form 10 of income tax is a critical document in Indian taxation for financial disclosure and is frequently needed by the Securities and Exchange Commission (SEC). It also functions as a registration statement for firms that want to go public, in a similar fashion as the SEC filings operate within the U.S. This disclosure report includes particulars concerning the company’s business operations, financials, and governance, similar to the annual report. Conformity with Form 10 assures transparency in new securities issues under the Securities Act, supporting informed investment decisions and keeping regulatory standards in the Indian taxation system.
