Form 10

What is Form 10? Understanding Its Role in Income Tax Compliance

Definition and Purpose
Form 10 is a mandatory declaration that enables charitable and religious trusts to accumulate income instead of spending it within the same financial year, as required under Section 11 of the Income Tax Act. 

Generally, trusts are required to apply at least 85% of their total income towards charitable or religious purposes within the financial year. However, certain circumstances may require setting aside a portion of the income for future use, such as long term projects, infrastructure development, or capital intensive initiatives.

To legally accumulate and defer the application of this income without losing income tax exemptions for trusts, trusts must submit Form 10 online within the specified due date for Form 10 submission. Filing this form ensures compliance with Form 10 submission guidelines, preventing tax liabilities and penalties for non-compliance.

Form 10 Applicability for NGOs
While Form 10 applies to charitable and religious trusts, NGOs structured as societies or Section 8 companies must first obtain registration under Section 12AB of the Income Tax Act. Only after this registration can they avail of tax exemptions and file Form 10 to accumulate income for future charitable purposes.
 

Key Features of Form 10 Submission

• Mandatory Declaration: Trusts must explicitly state the purpose and duration of income accumulation.
• Time-bound Usage: The accumulated income must be applied within five years for the specified purpose.
• Investment Compliance: The accumulated income must be invested as per Section 11(5) of the Income Tax Act, which includes approved investment options such as deposits in scheduled banks, government securities, Unit Trust of India (UTI) units, and other prescribed modes. Non-compliance with these investment norms may lead to the loss of tax exemption benefits for the trust.
• Regulatory Oversight: The CBDT Circular No. 6/2023 and Finance Act Amendments have emphasized stricter scrutiny over charitable trust income accumulation, reinforcing the need for transparency and proper documentation.

Failure to comply with these conditions can lead to the taxation of accumulated income as part of the trust’s total income, resulting in substantial financial liabilities.
 

Eligibility Criteria: Who Can File Form 10?

Filing Form 10 does not apply to all entities. Only specific charitable and religious institutions meeting the following criteria can file this form,

1. Registered Under Section 12AA or Section 12AB

• Trusts and institutions must have valid registration under Section 12AA or the updated Section 12AB of the Income Tax Act to qualify for tax exemptions.
• Registration ensures that the trust is recognized as a non-profit organization, enabling it to claim tax benefits while accumulating income for future projects.

2. Engaged in Charitable or Religious Activities

• The trust’s primary objectives must align with the charitable or religious purposes as defined under the Income Tax Act.
• Eligible activities include education, medical relief, poverty alleviation, environmental conservation, and religious outreach programs.
• Any deviation from the approved objectives could lead to a revocation of tax exemptions and potential penalties.

3. Income Accumulation for a Specific Purpose

• The trust must demonstrate a legitimate need for accumulating income instead of applying it within the same financial year.
• Common reasons include,
  • Infrastructure Development: Setting up new institutions such as schools, hospitals, or community centers.
  • Expansion of Charitable Projects: Scaling existing initiatives to reach a broader beneficiary base.
  • Legal or Government Approvals: If a project requires government clearance or additional regulatory approvals before funds can be used.
  • Future Large-Scale Initiatives: Building reserves for projects that demand significant capital investment.

By ensuring strict adherence to these eligibility criteria, trusts can successfully file Form 10 online and protect their income tax exemptions under Section 11 of the Income Tax Act.
 

Step-by-Step Guide: Filing Form 10 Online

With the shift towards digitalization, the procedure for Form 10 filing has been streamlined, allowing trusts to submit it online. Here’s how,

Step 1: Log into the Income Tax Portal

• Visit the official Income Tax e-Filing website
• Log in using the trust’s PAN and registered credentials

Step 2: Navigate to Form 10

• Under ‘E-File,’ select ‘Income Tax Forms’
• Choose ‘Form 10’ from the list

Step 3: Provide Required Details

• Statement of Purpose: Mention the purpose of accumulating the income
• Period of Accumulation: The maximum allowable period is five years
• Mode of Investment: Specify how the accumulated funds will be invested or utilized.

Step 4: Submit Form 10 Online

• The form must be filed electronically using a Digital Signature Certificate (DSC) or Electronic Verification Code (EVC)
• After submission, an acknowledgment receipt will be generated
   

Due Date for Form 10 Submission: Ensuring Timely Compliance

Timely filing of Form 10 under the Income Tax Act is crucial for charitable and religious trusts to maintain their income tax exemptions for trusts and avoid unnecessary tax liabilities. 

According to CBDT Circular No. 6/2023, trusts must submit Form 10 online at least two months before the due date of the Income Tax Return (ITR) to ensure compliance with Form 10 submission guidelines.

Form 10 Submission Deadline: Key Dates to Remember

For charitable and religious trusts adhering to the financial year spanning from April 1 to March 31, it's imperative to observe the following critical deadlines to maintain compliance and uphold tax-exempt status,

1. Income Tax Return (ITR) Filing Due Date:

• For Trusts Requiring Audit: Trusts mandated to undergo an audit, typically due to income thresholds or specific activities, must file their ITR by October 31 of the assessment year. This deadline ensures that all financial activities are thoroughly examined and reported by legal requirements.
• For Trusts Not Requiring audits: Trusts not subjected to mandatory audits must file their ITR by July 31 of the assessment year. Adhering to this timeline is crucial to avoid penalties and ensure transparency in financial reporting.

2. Form 10 Submission Deadline:
To lawfully accumulate income for future charitable or religious purposes without incurring tax liabilities, trusts must submit Form 10 promptly. The stipulated deadline for this submission is sixty days before the due date for filing the Income Tax Return (ITR),

• For Trusts Requiring Audit: Given the ITR filing due date of October 31, the corresponding deadline for Form 10 submission is August 31 of the assessment year. Meeting this deadline is essential to ensure that the accumulation of income is recognised and exempted from taxation.
• For Trusts Not Requiring an Audit: With an ITR filing due date of July 31, Form 10 must be submitted by May 31 of the assessment year. Timely submission is vital to maintain compliance and safeguard the trust's financial planning strategies.

Failure to adhere to the due date for Form 10 submission can result in severe consequences, including,

• Taxation of accumulated income, which would otherwise be tax-exempt under Section 11 Income Tax Act.
• Revocation of tax exemption benefits, leading to financial liabilities for the trust.
• Potential penalties and scrutiny from tax authorities for non-compliance with income accumulation for charitable trusts regulations.
   

How to Ensure Timely Form 10 Filing?

To avoid compliance issues, trusts should follow these best practices,

1. Monitor Deadline Announcements: Keep track of updates from the Central Board of Direct Taxes (CBDT) regarding any changes in the due date for Form 10 submission.
2. File Form 10 Online Promptly: Using the procedure for Form 10 filing, trusts should ensure their submission is completed well before the deadline.
3. Maintain Proper Documentation: Ensure that the purpose of income set apart under Section 11 is well-documented to avoid rejection.
4. Seek Professional Assistance: Consult tax professionals to ensure adherence to Form 10 submission guidelines and compliance with the latest CBDT circulars and tax provisions.

By ensuring the timely and accurate Filing of Form 10 online, trusts can safeguard their tax exemptions under Section 11 and continue their charitable trust income accumulation without any legal or financial setbacks.
 

Conclusion: Securing Compliance & Strengthening Your Trust’s Future

Filing Form 10 under the Income Tax Act is a strategic move to ensure your trust’s long term financial health and tax benefits. By properly accumulating income for charitable trusts and adhering to Form 10 submission guidelines, trusts can continue their philanthropic mission without tax liabilities.

The timely filing of Form 10 online ensures that income set apart under Section 11 remains tax-exempt, allowing trusts to invest in future projects. Staying informed on updates like CBDT Circular No. 6/2023 and meeting the due date for Form 10 submission would help trusts avoid penalties and safeguard tax benefits.

To stay compliant, trust administrators must document their purpose, follow tax regulations, and seek expert guidance. A proactive approach to Form 10 filing today secures a tax efficient, impact driven future for your trust.