Impact of Finance Bill 2017 on Charities (Revised Note)
Finance
Minister Arun Jaitley’s fourth Budget is not particularly ‘charity friendly’!
Minister Arun Jaitley’s fourth Budget is not particularly ‘charity friendly’!
Sections
10(23C), 11, 12 & 80G have been amended leading to the following outcome:
10(23C), 11, 12 & 80G have been amended leading to the following outcome:
1) With effect from 1st April 2017, if any amount is credited or
paid out of income of any fund or trust or institution or any university or
other educational institution or any hospital or other medical institution
referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or
sub-clause (via), of Section 10(23C) to any trust or institution
registered under section 12AA, being voluntary contribution made with a
specific direction that they shall form part of the corpus of the trust or
institution, shall not be treated as
application of income to the objects for which such fund or trust or
institution or university or educational institution or hospital or other
medical institution, as the case may be is established.
paid out of income of any fund or trust or institution or any university or
other educational institution or any hospital or other medical institution
referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or
sub-clause (via), of Section 10(23C) to any trust or institution
registered under section 12AA, being voluntary contribution made with a
specific direction that they shall form part of the corpus of the trust or
institution, shall not be treated as
application of income to the objects for which such fund or trust or
institution or university or educational institution or hospital or other
medical institution, as the case may be is established.
2) Section
11 exempts from tax Income from property held for charitable or
religious purposes. However, a new “Explanation 2” has been proposed for
insertion according to which any amount credited or paid, out of the income a
trust or institution to any other trust or institution registered under section
12AA, being contribution with a specific
direction that they shall form part of the corpus of the trust or institution,
shall not be treated as application of income for charitable or religious
purposes.
11 exempts from tax Income from property held for charitable or
religious purposes. However, a new “Explanation 2” has been proposed for
insertion according to which any amount credited or paid, out of the income a
trust or institution to any other trust or institution registered under section
12AA, being contribution with a specific
direction that they shall form part of the corpus of the trust or institution,
shall not be treated as application of income for charitable or religious
purposes.
As of
now, charitable organizations were not allowed to make a corpus donation or a
grant to another charitable organization out of their accumulated income. They
were allowed to make corpus donations/grants out of their current or
non-accumulated income.
now, charitable organizations were not allowed to make a corpus donation or a
grant to another charitable organization out of their accumulated income. They
were allowed to make corpus donations/grants out of their current or
non-accumulated income.
However,
now, with the proposed amendment, giving a corpus donation or grant by one
charitable organization to another charitable organization will no longer be
allowed for organisations that are tax exempt and who wish to retain their tax
exempt status.
now, with the proposed amendment, giving a corpus donation or grant by one
charitable organization to another charitable organization will no longer be
allowed for organisations that are tax exempt and who wish to retain their tax
exempt status.
3) Section 12A has been amended to the effect that, if a trust or
institution has either applied for registration u/s 12AA or already is
registered under the old section 12A or the new 12AA and, subsequently adopts or undertakes modifications of the objects which do not
conform to the conditions of registration, the trust or institution must apply
in the prescribed form and manner, within a period of thirty days from the date
of said adoption or modification, to the Principal Commissioner or
Commissioner.
institution has either applied for registration u/s 12AA or already is
registered under the old section 12A or the new 12AA and, subsequently adopts or undertakes modifications of the objects which do not
conform to the conditions of registration, the trust or institution must apply
in the prescribed form and manner, within a period of thirty days from the date
of said adoption or modification, to the Principal Commissioner or
Commissioner.
Also, the return of income must be filed by every trust or
institution registered u/s 12A or 12AA in accordance with the provisions of
section 139(4A), within the time allowed under this section (within six months
of the close of the financial year or 30th September).
institution registered u/s 12A or 12AA in accordance with the provisions of
section 139(4A), within the time allowed under this section (within six months
of the close of the financial year or 30th September).
4) Finance Act 2012 had inserted a
new sub-section (5D) to Section 80G making any payment exceeding a
sum of ten thousand rupees allowed as a deduction only if such sum
was paid by any mode other than cash. The
Finance Minister has now proposed that this limit of Rs. 10,000/- be
further reduced to just Rs. 2,000/-.
new sub-section (5D) to Section 80G making any payment exceeding a
sum of ten thousand rupees allowed as a deduction only if such sum
was paid by any mode other than cash. The
Finance Minister has now proposed that this limit of Rs. 10,000/- be
further reduced to just Rs. 2,000/-.
This does not mean that cash
donations in excess of Rs. 2,000/- cannot be accepted by charitable
organisations. It simply means, the donor cannot claim tax deduction
u/s 80G while computing his/her income liable to tax, for sums given
in excess of Rs. 2,000/- to any charity by way of cash. There
is no limit on donations made by cheque or e-transfer. In other
words, a donor may write out a cheque of any amount or contribute
using his/her credit card and claim tax deduction.
donations in excess of Rs. 2,000/- cannot be accepted by charitable
organisations. It simply means, the donor cannot claim tax deduction
u/s 80G while computing his/her income liable to tax, for sums given
in excess of Rs. 2,000/- to any charity by way of cash. There
is no limit on donations made by cheque or e-transfer. In other
words, a donor may write out a cheque of any amount or contribute
using his/her credit card and claim tax deduction.
Where charitable organisations are
concerned, they should make it clear to all donors that they cannot
claim tax deduction for contributions exceeding Rs. 2,000/- by way of
cash. Donation receipts issued to donors contributing in cash
exceeding Rs. 2,000/-, should indicate that the amount was received
in cash and being in excess of Rs. 2,000/- it would not entitle the
donor to claim tax deduction. As a matter of abundant caution,
charitable organisations should obtain the full contact details of
the donor and his/her PAN.
concerned, they should make it clear to all donors that they cannot
claim tax deduction for contributions exceeding Rs. 2,000/- by way of
cash. Donation receipts issued to donors contributing in cash
exceeding Rs. 2,000/-, should indicate that the amount was received
in cash and being in excess of Rs. 2,000/- it would not entitle the
donor to claim tax deduction. As a matter of abundant caution,
charitable organisations should obtain the full contact details of
the donor and his/her PAN.
In the
current environment, cash transactions are likely to bring charities
under greater scrutiny of Assessing Officers and our advisory would
be to discourage cash donations.
current environment, cash transactions are likely to bring charities
under greater scrutiny of Assessing Officers and our advisory would
be to discourage cash donations.
Noshir Dadrawala –