Trade unions play a crucial role in protecting the rights and interests of workers. They negotiate with employers to secure better wages, working conditions, and benefits for their members. But have you ever wondered how trade unions generate income and whether it is taxable?
Under Section 10(24) of the Income Tax Act, trade unions enjoy certain exemptions on their income. Let’s delve deeper into this provision and understand its implications.
The term “trade union” is defined in Section 2(47) of the Income Tax Act to mean “any association of employees the primary objective of which is to protect or promote the interests of its members in relation to employment or to improve their working conditions.”
The income of a trade union includes income from all sources, such as:
- Membership fees
- Grants from the government or other organizations
- Income from investments
- Income from activities carried on by the trade union
The exemption under Section 10(24) is available only if the income of the trade union is used for the purpose of carrying on the activities of the trade union. If the income is used for any other purpose, it will be taxable.
Here are some examples of how a trade union might use its income:
- To pay the salaries of its office-bearers and staff
- To organize meetings and rallies
- To publish a newsletter or magazine
- To provide legal assistance to its members
- To negotiate with employers on behalf of its members
Here are some examples of activities that a trade union may carry on:
- Negotiating collective bargaining agreements with employers
- Providing legal assistance to its members
- Organizing strikes and protests
- Running educational and training programs for its members
- Providing financial assistance to its members in need
To claim the exemption under Section 10(24), a trade union will need to file its income tax return and attach a copy of its registration certificate and a copy of its audited accounts.
Section 10(24) of the Income Tax Act deals specifically with the income of trade unions. According to this section, the income of a registered trade union is exempt from tax if it meets certain conditions.
Conditions for Exemption
To qualify for exemption under Section 10(24), a trade union must fulfill the following conditions:
- The trade union should be registered under the Trade Unions Act, 1926.
- The primary purpose of the trade union should be to protect the rights and promote the welfare of its members.
- The income of the trade union should be applied solely for the benefit of its members.
- The trade union should maintain proper books of accounts and get them audited annually.
Types of Income Exempted
Section 10(24) provides exemptions for specific types of income earned by trade unions. These include:
- Membership fees collected from members
- Contributions received from employers for the welfare of workers
- Donations received for the promotion of trade union activities
- Income received from investments made by the trade union
Income Not Exempted
While certain types of income are exempted under Section 10(24), trade unions are still liable to pay tax on other sources of income. These may include:
- Income from business activities unrelated to the primary objectives of the trade union
- Income from investments not directly related to trade union activities
- Rental income from properties not used for trade union purposes
Importance of Proper Record Keeping
To enjoy the benefits of exemption under Section 10(24), trade unions must maintain accurate records of their income and expenses. It is essential to keep proper books of accounts and get them audited annually by a qualified auditor.
By maintaining transparent financial records, trade unions can demonstrate that their income is being utilized solely for the benefit of their members. This strengthens their case for exemption under Section 10(24) and ensures compliance with tax regulations.
Section 10(24) of the Income Tax Act provides trade unions with exemptions on their income, subject to certain conditions. It is important for trade unions to understand these provisions and ensure compliance to avoid any tax-related issues. By fulfilling the conditions and maintaining proper records, trade unions can continue to protect the rights and welfare of workers without any undue tax burden.