4.––Compliances

Books of account.

347

Where the total income of a registered non-profit organisation, without giving effect to the provisions of this Part, exceeds the maximum amount which is not chargeable to income-tax in any tax year, such registered non-profit organisation shall be required to keep and maintain the books of account and other documents in such form and manner and at such place, as prescribed.

Explanation

Section Summary:

This section mandates that registered non-profit organizations (NPOs) must maintain proper books of accounts and other documents if their total income exceeds the threshold that is exempt from income tax. The requirement applies when the income, without considering any exemptions under this part of the law, crosses the maximum amount not chargeable to tax.

Key Changes:

• New Requirement for NPOs: Previously, NPOs may not have been explicitly required to maintain books of accounts unless their income exceeded a certain threshold. This section now makes it clear that if their income exceeds the tax-free limit, they must maintain proper records.
• Form and Manner Prescribed: The section specifies that the books of accounts and documents must be maintained in a prescribed form and manner, which will be detailed in the rules or guidelines issued by the tax authorities.

Practical Implications:

• Increased Compliance Burden: NPOs with income above the tax-free limit will need to ensure they maintain detailed books of accounts and other documents as per the prescribed format. This may require additional administrative effort and resources.
• Audit and Scrutiny Risk: Failure to maintain proper records could lead to scrutiny or penalties during tax assessments. NPOs must ensure their financial records are accurate and up-to-date.

Critical Concepts:

• Total Income Without Exemptions: This refers to the gross income of the NPO before applying any exemptions or deductions available under the law.
• Maximum Amount Not Chargeable to Tax: This is the income threshold below which no tax is levied. For NPOs, this is typically the amount up to which their income is exempt under Section 11 or 12 of the Income Tax Act.

Compliance Steps:

1. Determine Income Threshold: Calculate the total income of the NPO without applying any exemptions under this part of the law.
2. Maintain Books of Accounts: If the income exceeds the tax-free limit, ensure that books of accounts and other documents are maintained in the prescribed form and manner.
3. Preserve Records: Store these records at the designated place as specified by the tax authorities.
4. Prepare for Audit: Ensure that the books are audit-ready in case of any scrutiny by the tax department.

Examples:

• Scenario 1: An NPO has a total income of ₹3,00,000 in a financial year. The tax-free limit is ₹2,50,000. Since the income exceeds the limit, the NPO must maintain books of accounts as prescribed.
• Scenario 2: Another NPO has a total income of ₹2,00,000, which is below the tax-free limit. In this case, the NPO is not required to maintain books of accounts under this section.

This section ensures that NPOs with significant income maintain proper financial records, promoting transparency and accountability.