Tax compulsions have already forced many non-governmental organisations (NGOs) to float for-profit organisations. Now, it seems the tax authorities want to tighten the tax noose around charitable organisations in the forthcoming Budget.
According to a report in the Business Standard, Finance Minister Pranab Mukherjee is likely to announce new tax provisions dealing with non-profit organisations set up for charitable purposes. The proposals might be implemented under the new Direct Tax Code (DTC) regime, the implementation date of which is scheduled to be announced in the Budget.
Under DTC, the income of non-profit organisations are proposed to be exempt. On those set up for charitable purposes, there could be a proposal to levy a tax on their surplus at the rate of 15 percent. Commercial activities of NGOs in pursuit of a purpose other than general utility are taxable.
However, donations to NGOs whose surplus is proposed to be taxed will be eligible for tax deduction under DTC.
In 2008, the finance ministry ended tax waivers for charities that engaged in commercial activity worth over Rs 25 lakh a year, which hurt hundreds of charitable entities. In the past two years, Income Tax officers have been sending notices to several NGOs and raising tax demands for all those activities that did not fall into the narrow definition of ‘relief to the poor, education and medical relief’.