Business News/ Politics / Policy/  Myriad laws govern non-profit organizations’ funding

The Greenpeace India case of June 2014 put the issue of foreign funding to Indian not-for-profit associations (NPAs) centre stage. The organization had its bank accounts frozen and international funding blocked, following a ministry of home affairs (MHA) order. That is because it was said to be in violation of the Foreign Contribution (Regulation) Act, 2010 (FCRA), a legislation administered by the MHA.

Greenpeace, along with around 40,000 other NPAs, is registered with the ministry to receive foreign funding. But these 40,000-plus NPAs constitute a mere fraction of the total number of such organizations in the country, which various studies and reports of the ministry of statistics and programme implementation put in the range of 1.3-3.3 million.

So, what happens to NPAs not receiving foreign funds? Are the laws governing them less stringent? That’s not the case, say civil society organizations (CSOs).

“Other laws governing financial transactions of the not-for-profit sector are just as stringent and thorough," said Subrat Das, executive director at the Centre for Budget and Governance Accountability (CBGA), a Delhi-based NGO that works on policy research and advocacy-related governance. He was referring to the Income Tax (I-T) Act, 1961, and the Prevention of Money Laundering Act, 2002, among others.

Human rights lawyer and activist Vrinda Grover said FCRA is just one of the many laws that the government can use against organizations and individuals voicing dissent and opposing government policy.

“While the country has transitioned from being a colony to a constitutional democracy, our laws have not," she said.

Several laws

After registration under the Societies Registration Act, 1860, or the various trust registration acts—ranging from the Indian Trusts Act, 1882, to Bombay Public Trusts Act, 1950—all NPAs come under the ambit of the I-T Act. Under the I-T Act, they are required to file annual returns with the tax department for tax exemption of receipts under section 12(a) and, under section 80(g), if giving money for charitable purposes.

Tax exemption is given to organizations that undertake activities related to “(a) relief of the poor (b) education (c) medical relief and (d) advance of any other object of general public utility".

The subjectivity of these terms has led to many a tussle between a CSO and the authorities.

Satish Girija of Nav Bharat Jagriti Kendra (NBJK), an NPA working on education and microfinance in Jharkhand, said, “The I-T Act gives discretionary powers to income tax officers and this is perceived as a threat by NGOs because if the tax exemption registration under 12 (a) is ever cancelled by the I-T department, the whole body of work and nature of the organization changes—it becomes like any other business or trade."

The I-T Act has also been amended repeatedly. In 2009, under the United Progressive Alliance government, the I-T Act was changed to redefine the provision—what constitutes charitable purpose and what does not.

Before 2009-10, business income of a charitable trust or institution was also eligible for tax exemption, but only if the business is “incidental to the attainment of its objects" and separate books of accounts are maintained for such business. However, since April 2009 the “advancement of any other object of general public utility shall not qualify as a charitable purpose if the same involves the carrying on of any activity in the nature of trade, commerce or business, or rendering of any service in relation to any trade, commerce or business, for a consideration", explains the handbook released by the tax department last year.

Anupama Datta, director of policy research and development at HelpAge India, one of the oldest not-for-profits working with the elderly, said, “The diverse nature of the non-profit sector as a whole has created problems in definitions of income and income-related tax regulations."

Shifting goalposts

The interpretation of what charity is has become the biggest hurdle for most organizations. Financial management service foundation (FMSF), established in 1995, helps other NPAs in filing returns, adding capacity, etc. Its executive director Sanjay Patra says every year his team of 20 spends hours with the I-T department to try and prove that what FMSF does is charity.

Caught in a similar conundrum since 2009, Girija has been writing and approaching authorities to gain clarity on whether NBJK’s microfinancing project is acceptable as charity. He is yet to receive a response.

“While the nature of charitable work has changed over the years, the definitions have not and that is why there is such a disconnect between the government and the not-for-profit sector," Patra said.

Enakshi Ganguly Thukral of HAQ, an organization that works for children’s rights, said NPAs are open to monitoring but it is the abuse of the law that is proving to be a challenge. “We use public money and, therefore, it is a must that we be transparent and accountable," she said, adding, “The laws are instruments for transparency and accountability of all stakeholders, selective use makes them instruments of harassment."

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Updated: 15 Jun 2015, 02:11 PM IST
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