Non-profit groups seek tax exemption

New Delhi: Ahead of the national budget due on 16 March, non-profit organizations (NGOs) want the finance ministry to roll back taxes levied on earnings to fund charitable and humanitarian work.

The demand centres on a provision in the Income-tax Act that makes the incomes of NGOs taxable if resources are raised through commercial ventures—whether renting a building, selling greetings cards or marketing handlooms—even if they are meant for charitable activities. Such activities provide a livelihood to thousands of needy, NGOs say.

The law states that health, education and relief assistance to the poor fall under the charity category, enjoying tax exemption. This list was expanded to include two other categories—monument and environment preservation—when an amended income tax law came into force in 2009.

But a development organization, classified as a general public utility, cannot carry on commercial activity without attracting taxes. The Centre imposed the tax clauses largely to prevent parking of illegal funds in such organizations by political parties and camouflaging of business transactions by firms in the name of charity.

While the government’s stand is well-intended, it makes for discriminatory selection of those who will be entitled to tax exemptions and deprives the needy of much-needed resources, activists say. The government is withdrawing the non-profit status of development institutions instead of taxing those with business income such as private schools?and hospitals, they say.

There’s a deep contradiction in how government views charity, says Harsh Jaitli, chief executive officer of Voluntary Action Network India, an umbrella association of some 5,000 non-profit groups.

“Profit-making schools and hospitals don’t have to pay taxes, but those fighting for tribal or land rights do. Such laws will squeeze the voluntary sector,” Jaitli said on Monday at a forum in the capital attended by a dozen NGOs, including Child Relief and You, HelpAge India and Seva Mandir.

Last month, a delegation of non-profit groups met finance minister Pranab Mukherjee to demand withdrawal of the tax provisions on organizations that raise resources through business activities even if they are “incidental” to the charitable work they do.

Manoj Fogla, a charity law expert, said it’s likely companies are misusing the charity provisions by creating trusts to avail tax exemption.

“The government should lift the veil on what is charitable, instead of making a harsh law that favours a few,” Fogla said. “They are not touching people who are making profit in name of charity, but harassing genuine NGOs.”

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