<\/span><\/h2>\n\n\n\nMicro\nFinance Institutional Trust has different mission objectives and sometimes\nnumerous, such as refining the livelihoods<\/strong> of the poor while\nattaining economic self-sustainability<\/strong>. Moreover, Social capital\nhas found to be essential for the success of MFI\u2019s, regardless of their core\nundertakings. <\/p>\n\n\n\nWhile\nintensifying, social capital increases the success of microfinance members. It\nalso promotes the self-sustainability of MFI\u2019s by providing higher repayment\nand saving rates<\/strong>. Social capital is one of the critical elements of\nsuccess for small-scale entrepreneurs determined by earnings. <\/p>\n\n\n\nHowever, trust, as a component of social capital, helps to solve market failures and, in turn, can be used to predict the success<\/strong> of MFI\u2019s (as determined by repayment rates). Trustworthiness<\/strong> can overcome the lack of contract implementation through a measurable positive impact on repayment rates. Thus, it is a significant component in determining the success of group lending outlines and schemes, as stated above.<\/p>\n\n\n\n<\/span>What is the\nScenario of taxation for the Micro Finance Institution under Trusts?<\/span><\/h2>\n\n\n\n\n- We all are aware that Section 11 of the Income Tax Act<\/strong> exempts the income of charitable trust from the charge of tax on the completion of certain situations. Moreover, according to the sections 12, 12A, 12AB and 13 <\/strong>and specific clauses of Section 10 of Income Tax Act<\/strong> oversee the issue of taxation of such MFI Trust. Subsequently, the object of microfinance may get reflected as a charitable function. <\/li>\n\n\n\n
- The local evaluating officers of the Income Tax Department usually exempt the income commencing from microfinance activities from Chargeable taxes. Nevertheless, MFIs need to apply to the income tax authorities to get this exemption with due process and returns an interval period.<\/li>\n<\/ul>\n\n\n\n
<\/span>What needs to\ndone for availing exemption under Section 11?<\/span><\/h2>\n\n\n\n\n- Registration:<\/strong> The MFIs Trust Proposed for registration under Section 12A<\/strong>, the MFI Trust or institutions should apply within one year from the date of establishment of the trust, in Form No 10A (in duplicate) along with the ‘memorandum of association\u2019 in original. Attach all the documents stated above (Documents required)<\/strong> and apply as per the procedure given. After getting the order, granting or refusing registration has to get approved within six months from the end for which the registration got acknowledged. Moreover, if the Commissioner of Income Tax is satisfied relating everything, he shall, after giving reasonable opportunity<\/strong> of being heard to the concerned trust, passes an order concerning the canceling or accepting the registration granted under Section 12AA. <\/li>\n\n\n\n
- Maintenance of Accounts<\/strong>: The Trust should prepare an \u2018Income and Expense Account.<\/strong>‘ Any intended contribution received by the trust shall believe to be income resultant from the property held under trust. It shall form part of the corpus, and it should get specified on the receipt issued, as the same will be exempt under section 11 (1)(d) of Income Tax Act. <\/li>\n\n\n\n
- Obligatory Audit:<\/strong> Whosesoever the total income of the Trust \/institution surpasses Rs 50,000 in any preceding year<\/strong>, the accounts of such trust are required to get audited. The audit report needs to be furnished in Form No 10B<\/strong> as well as with the returns. <\/li>\n\n\n\n
- No Income should get spent for the benefit of definite persons<\/strong>: No portion of the income or property of a charitable Trust claiming exemption under Section 11 of Income Tax Act should be used or applied for a profit of any person stated under Section13\/3<\/strong>. However, it is a concern of subject to certain exceptions.<\/li>\n<\/ul>\n\n\n\n
<\/span>What are the Updates on the Indian Micro-Finance Industry concerning 2020-21 Impacts?<\/span><\/h2>\n\n\n\n\n- GST Issue<\/strong><\/li>\n<\/ul>\n\n\n\n
\n- The Microfinance Industrial body, in its wish-list for Budget 2020-21, has insisted the government apply the charge of goods and services tax (GST) on the facilities and services delivered by the sector. Moreover, by highlighting the key demands, the Executive Director opines that – Micro Finance Institutions offer various services to the microfinance clients. They kindly request the Government of India that Goods and Services Tax (GST) should be done away only on the services<\/strong>, as, ever since, it is a service provided to the low-income section of the population. <\/li>\n\n\n\n
- However, the additional tax load at this time has placed on these low-income clients who are counterproductive to the government’s policy on financial enclosures. In contrary to it, the counter has observed as there is no GST on loans from banks<\/strong>, and hence the same should not apply to loans taken from MFIs.<\/li>\n\n\n\n
- In the middle of others, the industry expects the Budget to help in speed up lending from the public sector banks to Micro Finance Institutions. Moreover, by gradually slowing down in 2018-19, it came down to 12 percent of total borrowing from 22 percent in 2017-18. They are requesting the finance minister to strengthen plans for adequate funds for PSB that will used for the microfinance sector. It has also questioned for enhanced budgetary allocations to NABARD, SIDBI<\/strong>, and their holdings to increase the on-lending to MFIs. <\/li>\n<\/ol>\n\n\n\n
\n- Ordinance turned into Law<\/strong><\/li>\n<\/ul>\n\n\n\n
\n- The Experts in the sector expect more small finance bank licenses getting issued, and the industry emerging as market-driven consuming all listed entities. Moreover, the Indian microfinance sector strikes out of the period on a low point<\/strong>. In that period- Right after the October 2010 disaster in Indian microfinance, the then Andhra Pradesh government has been reacting to reports of coercive loan repossessions by some MFIs. They were the promulgated an ordinance, commanding immediate drastic curbs on MFI operational. <\/li>\n\n\n\n
- As a result of all the efforts taken up by the government, the ordinance that later turned into a law by an Act of the stateAssembly<\/strong> required MFIs to record themselves with multiple state government bodies. They need to declare their interest rates upfront and make all particulars relating to borrowers public, stop looking for weekly repayments, and deny extra credit to borrowers who already have loans unresolved. It had consequences across the sector and in further geographies too.<\/li>\n<\/ol>\n\n\n\n
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