What is the impact of the Finance Bill 2015 on charitable organisations, NGOs in India?
Where non-profits organisations (NPOs) and the voluntary sector are concerned, the Finance Bill 2015 has neither offered relief nor given non-governmental organisations (NGOs) a reason to smile.
At a time when local grant support from foundations is running low and foreign donors are making an exit, the only manner in which NPOs can think of sustainability is through income generating activities. One would have hoped that the current ceiling of Rs25 lakhs on “business income” would have been enhanced to Rs1 crore. Instead, Finance Minister Arun Jaitley has further tightened the screws on “business activities”.
Read on …
1) “Yoga” has been brought under the definition of “Charitable Purpose” as defined u/s 2(15) of the Income tax Act 1961. It has been added along with education.
2) Up to now, institutions established for “charitable purpose” falling under the category “advancement of any other object of general public utility” were under threat of losing their tax exemption if income from their “Business activity” exceeded Rs25 lakh during the financial year. This provision has been made tighter with the requirement that any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business for a cess or fee or any other consideration, irrespective of the nature of use or application or retention of the income from such activity must meet the following criteria:
I. Such activity must be undertaken in the course of actual carrying out of such advancement of any other object of general public utility and
II. The aggregate receipts from such activity or activities during the previous year do not exceed twenty per cent of the total receipts of the trust or institution under such activity or activities of that previous year.
3) In other words, if the total receipts of the trust or institution during the previous financial year (from donations, interest and rent) amounts to Rs1 crore, then, it cannot have business income in excess of Rs20 lakh. Here too the business or commercial activity must be undertaken in the course of actual carrying out of such advancement of any other object of general public utility. The fact that a business or commercial activity may have been undertaken to ultimately apply such income for charitable purpose would carry no weight.
4) “Swatch Bharat Kosh” and “Clean Ganga Fund” have been brought under the provision of Section 10(23C) (iii aa) and (iii aaa) respectively for the purpose of tax exemption.
5) With regard to accumulation of unspent income, Section 11(2) is sought to be modified such that the details must be furnished on or before the due date specified under Section 139(1) for furnishing the return of income for the previous year (i.e. 30th September). Also, the period during which the income could not be applied for the purpose for which it is so accumulated or set apart due to an order or injunction of any court shall be excluded.
6) Donations (other than corporate social responsibility (CSR) contributions under the Companies Act 2013) to the Swatch Bharat Kosh (by residents and non-residents) and Clean Ganga Fund (by residents) will be 100 % deductible under section 80G of the Income-tax Act.
7) It has been proposed that service tax be enhanced from the current 12% to 14%. This 2% service tax rate hike could yield over Rs30,000 crore to the cash-starved government.
(Noshir H. Dadrawala, is CEO of Centre for Advancement of Philanthropy)