Loopholes found in tax audit of charitable trusts

The Comptroller and Auditor General of India (CAG) has detected many loopholes in the tax audit of charitable trusts. It has asked the Income-Tax Department to amend existing legislation to prevent the misuse of tax exemption granted to charitable trusts, including educational trusts.

In an audit report tabled in Parliament on Monday, the CAG has recommended many amendments, including one specifying whether donations to in-house trusts out of Corporate Social Responsibility funds, are eligible for deduction under Section 80G or not. It has also suggested that donations, if not utilized for specified purposes, should attract denial of exemptions and be treated as income in the year in which it is detected.

"Certain trusts/ institutions are taking undue benefits by availing of the permissible accumulation of 15% out of the current year's income and then transferring the rest of the income to others trusts," according to the report.