Charity ends when profits start kicking in
Income generated by charitable trusts from other activities has been brought under tax net. The move could impact many an institution.
By TNN |
For years, corporates have been masking various commercial activities in the garb of charitable trusts to escape tax. It���s a simple no-brainer that almost all the business houses in the country indulge in. In what could be a tricky terrain in the tax landscape, the Budget has tried to plug this loophole.
The income generated by charitable trusts from commercial activities ��� like a hospital earning through sale of medicines ��� will now be taxed. Such windows of income may look innocuous, but the government plans to rake in as much as Rs 5,000 crore of extra revenues by taxing these trusts. It will also impact entities which have set up trusts to deal in art and handicrafts. No longer will they get a tax break on such income.
Interestingly, even spiritual organisations that charge a ���fee��� for their teachings cannot claim a tax exemption. But there���s a catch: such organisations will still get a tax break if they call themselves ���public religious purposes trust��� and get the approval of a designated authority.
The move will also impact ���not-for-profit companies��� ��� better known as Section 25 companies in corporate parlance ��� that generate income from similar activities. ���Even these companies will have to pay tax on income earned through business operations,��� says Aseem Chawla, partner, Amarchand Mangaldas.
For long, the government has been trying to bring certain categories of charitable institutions under the tax net, given the huge revenue implications in doling out tax breaks. Over the years, it has been tightening the norms for charitable institutions that claim tax exemptions.
Further, all charitable institutions were asked to file returns. ���In the 2008-09 Budget, the government has signalled that any organisation whose activity is not specifically directed towards relief of the poor, education or medical relief would have to survive only on donations,��� said Daksha Baxi, a direct tax expert.
According to RSM Astute founder Suresh Surana, even sports organisations and the activities of trade bodies organising trade exhibitions and seminars may not qualify for tax relief. Besides, the rental income that a charitable or a religious trust earns by renting out its property for a commercial activity would also attract tax.
But there may be grey area, and some tax experts feel that the proposed move could lead to disputes on classification of income. For example, would a hospital earning income from incidental activities ��� that are not strictly medical in nature ��� qualify for tax exemption?
The income generated by charitable trusts from commercial activities ��� like a hospital earning through sale of medicines ��� will now be taxed. Such windows of income may look innocuous, but the government plans to rake in as much as Rs 5,000 crore of extra revenues by taxing these trusts. It will also impact entities which have set up trusts to deal in art and handicrafts. No longer will they get a tax break on such income.
Interestingly, even spiritual organisations that charge a ���fee��� for their teachings cannot claim a tax exemption. But there���s a catch: such organisations will still get a tax break if they call themselves ���public religious purposes trust��� and get the approval of a designated authority.
The move will also impact ���not-for-profit companies��� ��� better known as Section 25 companies in corporate parlance ��� that generate income from similar activities. ���Even these companies will have to pay tax on income earned through business operations,��� says Aseem Chawla, partner, Amarchand Mangaldas.
For long, the government has been trying to bring certain categories of charitable institutions under the tax net, given the huge revenue implications in doling out tax breaks. Over the years, it has been tightening the norms for charitable institutions that claim tax exemptions.
Further, all charitable institutions were asked to file returns. ���In the 2008-09 Budget, the government has signalled that any organisation whose activity is not specifically directed towards relief of the poor, education or medical relief would have to survive only on donations,��� said Daksha Baxi, a direct tax expert.
According to RSM Astute founder Suresh Surana, even sports organisations and the activities of trade bodies organising trade exhibitions and seminars may not qualify for tax relief. Besides, the rental income that a charitable or a religious trust earns by renting out its property for a commercial activity would also attract tax.
But there may be grey area, and some tax experts feel that the proposed move could lead to disputes on classification of income. For example, would a hospital earning income from incidental activities ��� that are not strictly medical in nature ��� qualify for tax exemption?
Download
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
The Economic Times Business News App for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
The Economic Times News App for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
ADVERTISEMENT
