Books of account and other documents to be kept and maintained by NPOs in India

Central Board of Direct Taxes (CBDT) vide Notification dated 10th August 2022 has inserted a new Rule 17AA to the Income tax Rules regarding “Books of account and other documents to be kept and maintained” by “every fund or institution or trust or any university or other educational institution or any hospital or other medical institution which is required to keep and maintain books of account and other documents.”

New Rule 17AA

New Rule 17AA of the Income tax Rules, provides details of the specific ‘books of accounts’ and ‘other documents (financial records)’ which must be kept and maintained by all institutions enjoying tax exemption either under section 10(23C) or under section 12AB of the Income tax Act 1961.

The Notification can be read or downloaded at:

https://www.incometaxindia.gov.in/communications/notification/notification-94-2022.pdf

Summary

Rule 17AA provides clarity with regard to what are the books of account which need to be maintained by every institution enjoying tax exemption in India, regardless whether it is registered as a Public Charitable Trust or as a Society under the Act of 1860 or as a Company licensed under Section 8 of the Indian Companies Act 2013.

The new Rules also specify other financial records and details which needs to be maintained especially in terms of project/s, donations received, donor details, how funds have been applied or utilized, carried forward or accumulated, loans (if any), movable and immovable properties, etc.

The Rules also explain the form in which books of account and financial records should be maintained and for how long these must be maintained. It also specifies penalties and consequence of non compliance.

A. Books of account

  1. Cash book;
  2. Ledger;
  3. Journal;
  4. Copies of bills, whether machine numbered or otherwise serially numbered, wherever such bills are issued and copies or counterfoils of machine numbered or otherwise serially numbered receipts issued;
  5.  Original bills wherever issued and receipts in respect of payments made;
  6. Any other book that may be required to be maintained in order to give a true and fair view of the state of the affairs and explain the transactions effected;
  7. Books of accounts in case of business undertaking held under trust [u/s 11(4)] and books of account for other business undertaking(s).

B. Other documents

  1. Record of all the projects and institutions
  • Name of the project and institution
  • Address of the place of project and institution
  • Objectives of the project  and  institution

2. Record of income of the relevant fiscal year

Donor details for contribution received

  • Name
  • Address
  • PAN (if available)
  • Aadhar number (if available)
  • Income from property held under trust u/s 11
  • List of such properties
  • Any other incomes

3. Record of the application of income for the relevant fiscal year

Details of application of income

  • Amount applied
  • Name and address to whom credit given / payment made
  • Object of the application of income

Details of amount credited / paid to any trust, institution, university, etc.

  • Name and address of the recipient
  • PAN of the recipient
  • Object of credit / payment

Details of application of income outside India (if any)

  • Amount applied
  • Name and address to whom credit given / payment made
  • Object of application of income

Details of deemed application of income

  • Details of reason for exercising option of availing deemed application of income (e.g. income accrued/earned but not received)

Details of accumulation of income u/s 11(2) (for five years)

  • Details of purpose of accumulation

Details of funds invested / deposited in approved modes as per section 11(5)

Details of funds invested / deposited in forms & modes other than specified under section 11(5) (if any)

Record of application of (accumulated) income of any preceding fiscal year/s

  • Year of accumulation
  • Amount of accumulated income applied during the current year
  • Name and address to whom credit given / payment made
  • Object of application of accumulated income

Details of application out of income claimed as deemed income

  • Year of deemed application
  • Amount of income applied during the current fiscal year out of deemed application
  • Name and address  to whom credit given / payment made
  • Object of application of such income

Details of application out of accumulation made u/s 11(2) (for five years)

  • Year of accumulation
  • Amount of income applied during the current fiscal year out of accumulation
  • Name and address of the person to whom credit given / payment made
  • Object of application of accumulated income

Also provide:

  • Details of money invested / deposited in section 11(5) specified forms & modes
  • Details of money invested / deposited in forms & modes other than specified in section 11(5) (if any)

Record of Corpus Donation received and applied during the current year

Donor details for corpus donation received during the year

  • Name
  •  Address
  • PAN (if available)
  • Aadhar number (if available)

Details of application of corpus donation received during the year

  • Amount applied (if any)
  • Name and address of the person to whom credit given / payment made (if any)
  • Object of application of corpus donation

Details of amount credited / paid as corpus donation to any trust, institution, university, etc.

  • Name and address of the recipient
  • PAN of the recipient
  • Object of credit / payment

Details of corpus donation invested / deposited as per section 11(5) (specified forms & modes)

Details of corpus donation invested / deposited in forms & modes other than specified in section 11(5) (if any)

Details of application of corpus donation

  • Amount applied
  • Name and address to whom credit given / payment made
  • Object of application of corpus donation

Details of amount credited / paid as corpus donation to any trust, institution, university, etc. (if any)

  • Name and address of the recipient
  • PAN of the recipient
  • Object of credit / payment

4. Record of loans and borrowings

  • Amount & date of loan or borrowing
  • Amount and date of repayment
  • Name and address of the lender
  • PAN of the lender
  • Aadhar Number of the lender (if available)

Details of application out of loan / borrowings

  • Amount applied
  • Name and address to whom credit given / payment made
  • Object of application of loan / borrowing
  • Loan / borrowing of any preceding year and applied during the current year
  • Repayment of loan / borrowing applied during any preceding year not claimed as application of income and repaid during current year

5. Record of properties held

Details of Immovable properties

  • Name and address
  • Cost of acquisition
  • Registration documents
  • Transfer of properties
  • Amount of net consideration utilized in acquiring the new capital asset

Details of movable properties

  • Nature
  • Cost of acquisition

6. Record of specified persons covered u/s 13(3) (i.e. those who should not derive benefit)

  • Name
  • Address
  • PAN
  • Aadhar Number (if available)

Details of transactions with specified persons

  • Date
  • Amount
  • Nature
  • Documents to establish that the transaction is, directly or indirectly, not for the benefit of the specified person

7. Form and manner of maintenance of prescribed books of account and documents

  • Written form;
  • Electronic form;
  • Digital form;
  • Print-outs of data stored in electronic or digital form; or
  • Any other form of electromagnetic data storage device

8. Place of maintenance of prescribed books of account and other documents

  • At Registered office
  • At such other place in India subject to following conditions:
  • a) At any other place in India as decided by the management by way of a resolution
  • Submission of written intimation of such other place to jurisdictional Assessing Officer (AO) within 7 days of passing the resolution giving full address of such other place
  • Written intimation to the AO shall be signed by a person authorized to sign and verify income tax return u/s

9. Mandated period for keeping and maintaining prescribed books of account and other documents

  • 10 years from the end of the relevant assessment year to which the books of account and documents pertain
  • In case of assessment u/s 147, the books of account, etc. shall be kept and maintained till such assessment u/s 147 has become final provided the notice for assessment has been issued within the period specified in section 149

10. Consequences of failure to maintain prescribed books of account and other documents

  • Denial of tax exemption u/s 11 & 12
  • Assessing officer can make ‘Best Judgment’ tax assessment u/s 144 of the Act for failure to produce required /prescribed books of account during assessment proceedings
  • Cancellation of registration granted u/s 12AB for failure to maintain prescribed books of accounts separately in respect of the business carried on by the public charity where such business is incidental to the attainment of its objectives [clause (b) of Explanation to section 12AB(4)]
  • Penalty of amount equivalent to amount representing omission of entry in the books of account, etc. maintained by the assesse u/s section 271AAD
  • Imprisonment u/s 276D for up to 1 year and fine for failure to produce / caused to be produced books of accounts and documents in response to notice u/s 142(1)
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