Voluntary Action Network of India (VANI), a not-for-profit which promotes volunteering and considers itself to be an umbrella organisation of the sector, sent the recommendations to the ministry in a lengthy note in January.
The note emphasises the need for measures that provide not-for-profits an enabling environment that will bring in more funds and a clear definition of what constitutes a not-for-profit, through an amendment to the Societies Registration Act, 1860 and the Income Tax Act, 1961.
“In the last few years, the financial environment in the country has changed substantially along with expectations from voluntary development organisations," said Harsh Jaitli, chief executive officer, VANI.
Citing the 2014 Corporate Social Responsibility (CSR) Rules, he added, “There is a specific focus of the current government to engage the private sector and voluntary organisations in projects related to national priority. However, the fiscal status of the voluntary sector is still very old and requires fresh thinking."
These demands, along with others (see box), have been repeatedly tabled by various not-for-profit associations for almost a decade now. In 2007, the Planning Commission—now Niti Aayog—drafted a national policy on the voluntary sector, but it is yet to be implemented.
“Under the current laws, a vast variety of institutions from hospitals, temple trusts, resident welfare associations to development organisations come under the same laws. The lack of clear definition leads to grey areas in terms of regulatory administration, which in turn has created the trust deficit against the sector," said Jaitli.
Echoing a similar sentiment, Sanjay Patra, a chartered accountant and executive director at not-for-profit consultancy Financial Management Services Foundation, explained, “Only one section in the Income Tax Act, Section 2, attempts to define charity. But it also leaves the definition hanging with the phrase ‘any other public utility’. This has led to confusion for both the regulatory authorities as well as the not-for-profits themselves."
He added that unless charity is clearly defined, the tax exemption applicable to the sector and those donating to the sector will always remain in doubt.
But others like Kunal Verma, chairman and managing director at Centre For Fundraising (CFF), a consultancy firm which helps in management and fund-raising of not-for-profit organisations, are of the view that just a clear definition or rationalisation of the tax regime may not be sufficient to deliver the much-needed monetary shot in the arm to the sector. “Procedural requirements of getting people to give more money for charity are tedious and outdated. The government must address these too," he said.
Verma said that close to 40-45% of funds for development organisations come from individual donors in India and over 85% of the non-governmental organisations are registered with the income tax department for 80(G) exemption. This clause provides the donor a 50% rebate on any amount given to charity and is included in the ₹ 1 lakh savings that every citizen is allowed.
“When you give money to a development organisation, you are not saving. You are contributing to the development of society and therefore that contribution should be treated differently to savings," Verma said.
Then, there are other sections in the same act like 35 (a)(c), which make donors eligible for a 100% rebate. However, this clause requires organisations and projects to be cleared by the government on a case-by-case basis and that is why only about 200 not-for-profits are able to give extend this benefit to donors.
“Under this clause, there are also conditions like a donor can apply for 100% exemption from the tax department if he gives money to build a water body. With the advent of social businesses and government schemes like MGNREGS this is an outdated incentive," Verma said.
According to him, the government needs to make giving more attractive like it is in the US and the UK. Additional exemption is needed for those who contribute to development organisations.
These demands become all the more relevant as distrust between the government, society and civil society is at an all-time high.
While addressing members of both houses of Parliament at the start of the budget session on 23 February, President Pranab Mukherjee said, “Inclusive growth covering the poorest of poor is the government’s top priority."
As inclusive growth is not possible without the not-for-profit sector which provides last-mile delivery of services and utilities, it has to be accorded priority in reforms too.
Some of VANI’s recommendations:
1. Change the definition of charitable purpose under Section 2(15) of the Income Tax Act to differentiate organisations engaged in development activities from other non-for-profit entities.
2. Activities undertaken under government projects or corporate social responsibility should not be considered business activities.
3. Establishment of mechanism of regular dialogue between NGOs, finance ministry and banks.
4. NGOs may be allowed to work outside India, which under section 11(1)(c) of the Income Tax Act is not the case. Income on activities outside India is not eligible for exemption.