Explain the tax exemption in case of NGOs U/S 11 and 12 of Income Tax Act.

Under the Income Tax Act of India, Sections 11 and 12 provide provisions for tax exemption to non-profit organizations, including NGOs (Non-Governmental Organizations), charitable trusts, and societies, subject to certain conditions. These sections aim to encourage philanthropic activities, promote social welfare, and incentivize donations to charitable organizations. Here's an explanation of the tax exemption provisions under Sections 11 and 12:

1. Section 11: Income from Property Held for Charitable or Religious Purposes:

   • Scope: Section 11 applies to income derived from property held under trust or legal obligation for charitable or religious purposes. This includes income generated from assets such as land, buildings, investments, and other properties owned by the NGO.

   • Tax Exemption: Income derived from property held for charitable purposes is exempt from taxation under Section 11, provided that the income is applied towards the organization's charitable objectives. This includes income from rent, dividends, interest, capital gains, and other sources.

   • Conditions: To qualify for tax exemption under Section 11, the NGO must fulfill certain conditions:

     • The NGO must be registered as a trust or a charitable institution under the relevant laws.
     • The property generating income must be held wholly for charitable or religious purposes and not for the benefit of any specific individual or group.
     • The income generated must be applied towards the NGO's charitable objectives within the prescribed time frame.
     • The NGO must maintain proper books of accounts and comply with reporting requirements as per the Income Tax Act.

2. Section 12: Conditions for Accumulation or Setting Aside of Income for Charitable or Religious Purposes:

   • Scope: Section 12 pertains to the accumulation or setting aside of income for charitable or religious purposes by NGOs.

   • Tax Exemption: Under Section 12, income accumulated or set aside for charitable purposes is eligible for tax exemption, provided that it is invested or deposited in specified modes as per the Income Tax Act. This allows NGOs to accumulate funds for future projects or for building reserves to sustain their charitable activities.

   • Conditions: To avail tax exemption under Section 12, the following conditions must be met:

     • The income must be accumulated or set aside solely for charitable or religious purposes.
     • The accumulated income must be invested or deposited in modes specified by the Income Tax Act, such as government securities, approved investments, or deposits in a scheduled bank.

In summary, Sections 11 and 12 of the Income Tax Act provide tax exemption benefits to NGOs and charitable organizations engaged in philanthropic activities. These provisions aim to incentivize donations, promote social welfare, and support organizations working towards charitable or religious objectives. By availing tax exemption under Sections 11 and 12, NGOs can maximize their resources and focus on advancing their missions to serve the community and promote the public good.