TDS Implication on NGOS’

Applicability of TDS on NGOs’ Payment:

TDS is also applicable to the NGOs. There is no general exemption that Trust, Society or
Non Profit Organizations are exempt from deducting and paying TDS. It depends on the
Financial Transactions and limits of TDS specified every year in the Financial Act. Thus if
NGOs makes payments to specific persons above specific limits, needs to deduct and pay
TDS within time line specified.

Look into the example below regarding TDS:

NGO paid salaries = Tax would be applicable on the basis of slab rate.

NGO paid Professional Fees = TDS would be deducted @10% on the amount of above Rs.
30,000.

NGO paid Rents = TDS would be deducted @10% on the amount of above Rs. 2,40,000.

NGO paid to contractors = TDS would be deducted @2% and 1% on the amount paid to
companies and others respectively. The Amount limit set for non-deduction of TDS under
sec. 194C:

1. Amount of invoice which is to be paid or raised to contractor <= RS. 30,000.

2. Overall amount of invoices raised or payment made other than above(i) is <= Rs.
1,00,000.

Applicability of TDS on NGOs’ Receipts:

NGOs face, Tax Deduction at Source (TDS) on various income earned by them. For
instance, Banks deduct TDS on the interest income of the NGOs. In case of large
organisation, substantial amount of TDS could be deducted. In such circumstances the
NGOs can avail the benefit of non-deduction of tax by the banker or the person responsible
for remitting income, by following the specific provisions of the Income Tax Act which have
been discussed U/s 197A.

Note: On the receipt of any grant by the trust is not subject to any tax at the time of
receiving grant.

Declaration Under Section 197A:

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 All NPOs have to apply to the ITO or non-deduction of tax, any self-declaration is no
longer permissible.
No deduction of tax is to be made in the case of a payee, if he furnishes a declaration
in writing in duplicate in the prescribed form [Form No. 15G] and verified in the
prescribed manner, to the payer of such income to the effect that tax on his estimated
income of the relevant previous year will be nil.
The payer of the income is required to deliver to the Commissioner of Income-tax one
copy of the aforesaid declaration on or before the 7th day of month following the
month in which the declaration is furnished to him [section 197A]. Where payments
are to be made to the same person more than once in a year, the declaration in the
relevant form may be furnished before the first payment in a year becomes due.
It may also be noted that in the declaration, particulars of only such securities are to
be furnished the income from which is payable, by the person to whom declaration is
furnished
The provisions of section 197A shall not apply where the amount of income on the
following items, or the aggregate of such income, exceeds the maximum amount
which is not chargeable to tax:

1. Interest on securities

2. Dividends

3. in respect of deposits under National Savings Scheme

4. Income in Interest other than interest on securities

5. Payments respect of units.

Rule 28AB of the Income Tax Act, 1961:

As per Rule 28AB provides for obtaining a certificate of no deduction of tax at source
in the case of certain entities, provided certain conditions are satisfied.
Certain Entity includes:
Persons in receipt of income or deemed income derived from property held
under trust wholly for charitable purposes and who claim exemption under
section 11 or section 12.
Persons mentioned below who are required to file a return of income under
section 139(4C) & (4D):
Scientific research association referred to in section 10(21);
News agency referred to in section 10(22B);
Association or institution referred to in section 10(23A);
Institution referred to in section 10(23B);
Fund or trust referred to in section 10(23C)(iiiae);
Fund or trust referred to in section 10(23C)(iv);

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 Trust or institution referred to in section 10(23C)(v);
University or other educational institution referred to in section 10(23C)(vi);
Hospital or other medical institution referred to in section 10(23C)(via);
Trade Union or association referred to in section 10(24)(a)(b).
Form of Application –

The persons mentioned above may make an application in Form No. 13 to the Assessing
Officer for the grant of a certificate under section 197(1) authorising them to receive
incomes of any type without deduction of tax at source, if the conditions mentioned below
are satisfied.

Conditions to be Satisfied – The persons must satisfy the following conditions in

1. The persons must have furnished the returns of income for all the assessment years for
which such returns became due on or before the date on which the application in Form No.
13 is made;

2. the entity if for the time being approved for the purpose of exemption from income-tax;

the applicant must give a list of Deductors from whom amounts are to be received
without deduction of tax at source every six months along with the names, address
and the amounts received.

The Assessing Officer may issue a certificate authorising payment of incomes without
deduction of tax at source, the certificate shall be valid for the financial year specified
therein.

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