Direct Tax Code Bill: Standing Committee on Finance Recommends Several Reliefs

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By Noshir H. Dadrawala

MUMBAI: The Direct Taxes Code (DTC) Bill, 2010, introduced in Lok Sabha on 30 August, 2010 was referred to the Standing Committee on Finance on 9 September, 2010 for examination and report thereon. This Committee presented its Report on 9 March 2012.

Here are the Recommendations:

1. The Committee has suggested that NPOs be allowed the option to adopt either the cash system or accrual system of accounting for computing their income as per the existing Act.

2. Under the DTC, NPOs have been allowed to carry forward 15% of total income or 10% of gross receipts, whichever is higher to be spent within 3 years from the end of the relevant financial year. The Committee however has observed that if NPOs are compelled to spend all their income, then this may adversely affect their sustainability in the future. They may be forced to survive precariously from year to year, without any long range activities or planning. The Committee has therefore recommended that the existing provisions may be restored so that NPOs become sustainable entities in the long run.

3. As regards other items proposed in respect of NPOs like carry forward and set off of losses, capital gains on transfer of financial asset and permitting of taxes other than income tax as permissible outgoings, the Committee has recommended restoring the status quo ante with a view to simplifying tax procedures for the NPOs. The Committee has desired that genuine charitable activities should be promoted and sustained and tax policies and procedures should not act as a hindrance in this process.

4. The Committee has suggested restoring the existing provision in section 11(1A) of the present Act enabling NPOs to reinvest in a prescribed manner sale proceeds of their capital assets held under trust wholly for charitable or religious purposes.

5. Inclusion in regard to organizations engaged in an activity intended to promote “international welfare in which India is interested and is approved by Central Government”, may be incorporated in the definition of NPO.

(Noshir H Dadarwala: Nosir H Dadarwala is the Chief Executive of the Centre for Advancement of Philanthropy (CAP) based in Mumbai. He can be reached at noshir@capindia.in )

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