Charitable organisations collect a substantial proportion of funds through donors who prefer not to reveal their identities—the government’s ban is eliminating their sources for finance
Non-governmental Organisations (NGOs) have been crying out against the government's diktat on taxing anonymous donations for some time now. The finance ministry had clamped down on anonymous donations to (non-religious) charitable organisations to prevent money laundering. However, a number of NGOs say that because of a few isolated incidents, many charitable entities have been affected.
Noshir Dadarwala, chief executive, Centre for Advancement of Philanthropy, has sent a petition to the Parliament of India Committee on Petitions (dated 29 June 2010), asking for the curbs on anonymous donations to be repealed.
Section 115BBC was introduced for the first time in the Finance Act, 2006, to tax anonymous donations to charitable organisations at the maximum marginal rate of 30%. Subsequently, a degree of relief was granted under the Finance (No 2) Act, 2009, that such anonymous donations aggregating up to five years of the total income of an organisation or a sum of Rs1,00,000-whichever is higher-will not be taxed.
"We are of the view that Section 115BBC, even after the amendment made by Finance (No 2) Act 2009, is a deterrent for genuine charitable organisations to mobilise funds for welfare and developmental work from the general public or ordinary citizens who are motivated to give for altruistic and not money laundering reasons," said the petition sent by Mr Dadarwala.
Mr Dadarwala, along with other NGOs, has met members of the Parliament of India Committee on Petitions in Mumbai to discuss the scrapping of taxes on anonymous donations.
NGOs argue that a number of leading charitable organisations mobilise their funds by placing their donations in collection boxes at shopping malls, airports, hotels and other public places where a number of ordinary citizens feel motivated to contribute money for a good charitable cause, be it for senior citizens, the
visually-impaired, impoverished street children or cancer patients.
"We are however of the view that a very large number of genuine charitable organisations and NGOs raise funds through collection boxes and people who put money into these boxes mainly comprise children and ordinary citizens of this country who may have heard about 'black money' but don't have any and contribute to charitable institutions only out of a genuine charitable impulse," added Mr Dadarwala.
Schools and colleges also raise money for various charitable causes with students going from door to door or requesting ordinary citizens in the streets to put money in collection boxes. According to Mr Dadarwala, NGOs which cater to orphans, cancer patients, and the mentally disabled are the ones who are most affected, as these organisations get nearly 30% of their annual donations from charity boxes.
"Leading NGOs collect lakhs of rupees annually through such collection boxes. Now, thanks to Section 115BBC of the Income-Tax Act, several NGOS have been forced to pull out these collection boxes," he added.
According to Shailesh Mishra, the founder of Silver Lining, an NGO which looks after senior citizens larger NGOs are affected by the provisions as they receive more anonymous donations, while smaller NGOs may not be affected.
The change of rules regarding anonymous donations had come about in 2006, when the then finance minister P Chidambaram made anonymous donations taxable by framing a new law under Section 115BBC of the I-T Act. At that time, he had said that anonymous donations to wholly charitable institutions needed to be taxed at the highest marginal rate, whereas donations to partly religious and partly charitable institutions or trusts could be taxed only if the donation is specifically for an educational or medical purpose. However, donations to wholly religious institutions and religious trusts were not to be taxed.
"Since the advent (of the new provisions) to the I-T Act in 2006, we have raised very limited funds through anonymous donations," said Kreeanne Rabadi, regional director, Child Rights and You (CRY).
Before the regulation was passed, charitable institutions and organisations were exempt from paying any tax if they claimed in their I-T returns that they had received secret donations. According to some, this allowed people to donate black money to a trust and then take grants against it, thereby making their black money legitimate.
In January 2008, various NGOs-which included HelpAge India, AccountAid, Oxfam Trust and the National Foundation for India-had sent a letter to Mr Chidambaram, Montek Singh Ahluwalia (deputy chairman, Planning Commission) and Indira Bhargava (chairperson, Central Board of Direct Taxes).
In these letters, these NGOs made the recommendation that the I-T authorities can get details of the anonymous donor from his banker and anonymous donations should not be made taxable as there are a lot of individuals and organisations who would like to remain anonymous while giving for charity.
"The government is trying to curtail crime, but it is a huge problem for people who want to remain anonymous," Mr Mishra said.