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The covid-19 pandemic and the consequent lockdown have laid bare the fissures that ail the Indian society and economy. The heart-rending reports of the devastating impact of the lockdown on the poor continue to this date.

This has led to questions about the government’s preparedness in dealing with the outcomes of a lockdown. While both the Central and state governments have announced relief packages, as many have pointed out, much more needs to be done, especially by the Centre.

NGOs at the forefront

Meanwhile a number of non-governmental organisations (NGOs) have stepped in to help in different ways. According to reports, NGOs, across states, have fed more people than the government has during the lockdown. Likewise, nearly 40% of the 10.37 lakh people who took refuge are staying in shelter homes arranged by NGOs.

The government too seems to have recognised the critical role played by these organisations during the nationwide lockdown. To ensure uninterrupted supply of foodgrain for NGOs and charitable organisations, on April 8, the government directed the Food Corporation of India (FCI) to provide wheat and rice to such entities under the open market sale scheme (OMSS) without having to go through the e-auction process. Until then only state governments and registered bulk users were allowed to buy stock from FCI at OMSS rates. Preceding this, Niti Aayog had enlisted the help of 92,000 NGOs to assist the government in identifying covid-19 hotspots and delivering services to vulnerable groups.

But things are poised to get tough for NGOs in the coming days.

New registration rules

Come 1 October, many such NGOs could find it harder to function. This is because certain amendments made in the Finance Act 2020-21 alter the validity of registration granted to these organisations. As per the amendments, all entities registered under Section 12AA will have to reapply for registration under the Income Tax Act to continue to avail tax exemptions. The new rules also say that these organisations will have to renew their registration every five years. Earlier such organisations were granted registration on a permanent basis.

Understandably, these amendments are likely to pose a huge administrative burden for NGOs, especially the ones that are not very big or well heeled.

These amendments can also have enormous financial implications for organisations whose tax exemption status can be revoked for any reason. The new rules in this regard seem rather harsh as not only the assets (including land and building) such organisations own will be valued at market prices, the net worth of their assets will also be taxed at the highest marginal rate.

Given that market value of land has increased enormously, many old institutions, including schools and hospitals, might just cease to exist, as they’ll have to sell off their assets to settle this demand.

Besides, it is not clear how renewal of registration every five years is going to increase transparency in any way. At present, not only are all such organisations compulsorily required to file annual tax returns online, many are subjected to scrutiny under CASS (Computer Aided Scrutiny Selection). In fact, as several NGO leaders have noted, most large charities are covered under scrutiny. Moreover, tax returns collect enough details to determine whether the objectives and activities continue to remain charitable or not. In short, the present mechanisms provide the government sufficient oversight over misuse or non-compliance of charity exemptions.

New tax regime for individuals

But the problems for NGOs do not end here. The Budget 2020 also changed the rules regarding donations made to charitable organisations by introducing a new, albeit optional, tax regime for individual taxpayers. Under the new tax regime, most exemptions available in the old regime (including that for donations) are no longer allowed. Many expect that going forward, the new tax regime with no exemptions could very well become the norm. This would obviously make it even more difficult for NGOs to raise funds, as it could discourage donors from donating. This does seem odd, given that the Centre is relying on tax incentives to encourage donations to the newly constituted PM-CARES Fund.

A changed world

This pandemic has changed the world fundamentally. The crisis it has brought is unprecedented in scale and need, with the poor and the marginalised reeling under its impact the most. Clearly the situation would have been even worse had not hundreds of NGOs acted in time to mitigate the effects.

It is imperative to emphasise, and not just during Covid-19, that NGOs have played a critical role in times of emergencies. Their role in alleviating hardships faced by the most underprivileged people in the country is well known.

Therefore, it is hoped that the government continues to value and recognise the critical role that NGOs play in our society. While its move to defer the date of registration from June to October 2020 is welcome, what is even more necessary is that it reconsiders the amendments so as to make the regulatory environment more enabling for NGOs.

This is required, if not for anything else, simply for the poor and the marginalised people of India.

(Malini Chakravarty is with Centre for Budget and Governance Accountability (CBGA). She can be reached at malini@cbgaindia.org)

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