Home / Home Page / New guidelines to check tax evasion by charitable trusts

New Delhi: Some five months after the government issued a notice asking charitable trusts to pay tax on revenue they earn from commercial activities, it is framing guidelines to check tax evasion at such entities, including Indian cricket’s governing board, two officials said.

The Central Board of Direct Taxes (CBDT), the apex body charged with the administration of taxes, may subject the accounts of such trusts to a compulsory scrutiny to ensure that they pay taxes and don’t circumvent rules, said one CBDT official who didn’t want to be named.

A charitable trust is one which is established for the benefit of the public as a whole or is devoted to an activity for public good. Typically, institutions that promote education, research, sports and so on are set up as charitable trusts. The Board of Control for Cricket in India (BCCI) is registered as one.

“Since no big trusts, including BCCI, have come forward and paid their advance taxes for the previous fiscal year, we have decided to put the trusts under compulsory scrutiny guidelines," said the senior CBDT official.

The income-tax (I-T) department has already cancelled the registration of Punjab Cricket Association (PCA) as a trust. The registration of PCA, one of the state cricket bodies affiliated to BCCI, was cancelled following a hearing held after it received a notice from the I-T department, said BCCI treasurer M.P. Pandove.

“BCCI has not received any such notice from the income- tax department for cancellation of registration," added Pandove.

Another CBDT official, who also didn’t want to be named, said the government was preparing guidelines to bring charitable trusts under its scanner.

“If a trust comes under compulsory scrutiny guidelines, it has to go through the compulsory assessment procedure. Just like there are norms for individuals and corporate (taxpayers), there will be norms for trusts, too," said Mukesh Bhutani, who heads the tax practice at BMR and Associates.

The I-T notification issued in December had said that “advancement of any other object of general public utility" shall no longer be considered a charitable purpose if it involves “any activity in the nature of trade, commerce or business or any activity of rendering any service in relation to any trade, commerce or business". The move to tax charitable trusts for revenue they earn from activities of a commercial nature was first announced in last year’s Union budget.

The notice had also said that “a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility".

Says Vikas Vasal, executive director, with KPMG India Pvt. Ltd: “If any charitable organization is carrying out commercial activity, it will be liable to tax. The income-tax department picks up few cases based on their market intelligence and then they are thoroughly examined."

“If religious trusts have any commercial revenue, they could also be included...but it is very rare that such trusts make revenues of commercial nature," Vasal said. “Tax authorities could ask for more information based on these scrutinies, but detailed assessments can be made only post-filing of returns, which is due in September."

According to Ganesh Raj, a partner at Ernst and Young Pvt. Ltd, the advance tax collection from trusts had been lower than expected. “Probably their (trusts’) own interpretation was that they are deploying money back so there is no question of them being taxable or there is no profit to be taxable," Raj said.

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