Wednesday, June 23, 2010


Under the latest proposal from the Finance Ministry, a Revised Discussion Papersuggests the following changes affecting charities and NPOs will be made in the Direct Tax Code (DTC).

·     NPOs already registered under the Income-tax Act, 1961 and holding valid registration on the date on which DTC comes into effect, would not be required to apply for fresh registration under the DTC. However, they would be required to provide additional information to facilitate the administration of the new provisions;

·     Up to 15% of the surplus or 10% of gross receipts, whichever is higher, will be allowed to be carried forward to be used within three years from the end of the relevant financial year. In other words, indefinite accumulation of up to 15% of gross receipts as is prevalent will not be allowed;

·     The term “charitable purpose” will be retained in place of “permitted welfare activity” proposed earlier;

·     Donations by an NPO out of its accumulated surplus to another NPO will not be considered as an application for “charitable purpose;”

·     A basic exemption limit will be provided and the surplus in excess of such limit will be subject to tax;

·     The cash method of accounting will be retained since it is simple to follow and easy to administer;

·     The Central Government will be empowered to notify any non-profit organization of public importance as an exempt entity;

·     Currently NPOs are allowed unlimited carry forward of unspent balance to the next financial year. It is proposed not to allow this;

·     NPOs will no longer be allowed to accumulate funds for up to 5 years;

·     Donors will not be able to enjoy 100% deduction for donations made to projects approved under section 35AC; and

·     Business activity, even if incidental, will not be allowed for NPOs established for a “charitable purpose” but falling under the category, “advancement of any other object of general public utility.”



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