What Budget 2017 means for not-for-profits

New Delhi: Charities said Wednesday they are concerned Budget 2017 lays down more challenges in their way toward collecting funds for social development.

The two proposals impacting the sector directly are the removal of a tax waiver clause–35 AC –and the reduction in the amount of money that organizations can accept as anonymous donations from the existing Rs10,000 to Rs2,000.

“The reduction in anonymous donation amount is a great move,” said Meenakshi Batra, CEO of not—for-profit Charities Aid Foundation (CAF) India.

“Registered bank transactions and donations with a paper trail only increase accountability and credibility of organizations and therefore this is welcome step,” said Batra.

However, she like most others in the sector expressed concern over the removal of clause 35 AC, which allowed 100% tax deduction to individuals and companies making contributions to specific charitable organizations for specific schemes. Read more

Anonymous donations are best avoided and their removal will help curb any money laundering or other illegal activities that some not-for-profits maybe involved in.

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Beginning 1 April 2017, this provision can no longer be availed by donors. The clause was provided by a revenue department committee, which selected projects, organisations and the amount, based on proposals submitted to the committee by not-for-profits.

“It is very unfortunate that this provision is no longer available, as it was among the handful of incentives available in the country for people to make charitable donations,” said Sanjay Agarwal, chartered accountant and principal of an auditing and accounting firm for the not-for-profit sector.

Incentives for donors are very important to make the not-for-profit sector less dependent on foreign donations, he said.

“One of the key areas of contestation is not-for-profit organistions receiving funds from overseas, which are viewed as in conflict with the national interest. That is why it is important for government to create an enabling environment for not-for-profits… Raising funds within the country is a big challenge and there are few incentives–one was the tax clause of 35 AC,” Agarwal said.

Puja Marwaha, CEO of CRY (Child Rights and You), said that till 2016 the organization received between 20% to 25% of individual donations and close to 80% to 85% of the corporate donations between January and March every year.

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“This suggests that tax benefits were also an influencing factor, if not the only reason for the spike in donations close to the end of the financial year,” she said. Marwaha expects a deep impact on the funds received by CRY in the coming year as the organization has had the 35 AC certification for the last 18 years.

Mathew Cherian, CEO of one of the oldest not-for-profits in the country–Help Age India, also cites similar numbers that suggest that anything between 20% to 30% of individual donations received by the organization were coming under the 35 AC ambit.

According to Father Fredrick D’Souza, executive director CARITAS India, a Christian not-for-profit, 35 AC included schemes, organizations and projects catering to the most marginalized communities.

“Our organization only received the certification for one year—more than 10 years ago—but as a person working in the not-for-profit sector I can tell you this clause provided critical support for organizations working for the betterment of the most needy,” he added. He hoped the corporate social responsibility (CSR) funds from India Inc will help bridge some of the expected slump.