Implications of the Budget & Finance Bill 2012 on Charitable Organizations in India


By Noshir H. Dadrawala

MUMBAI: Minister of Finance, Mr. Pranab Mukherjee presented the Union Budget for 2012-13 and the Finance Bill 2012 on Friday, 16th March 2012. Networks of voluntary organizations in India like Voluntary Action Network of India (VANI), Centre for Advancement of Philanthropy (CAP) and many others had earlier met Mr. Mukherjee and submitted memorandums requesting certain legitimate reliefs and more enabling tax provisions for India’s dynamic and evolving voluntary / nonprofit sector. However, all petitions made seem to have fallen on deaf ears.

Key Highlights of Budget:

1. The Direct Tax Code (DTC) has not been enacted as yet. The Parliamentary Standing Committee submitted their report only on 9th March 2012. Mr. Mukherjee has said that he will examine the report expeditiously and take steps for the enactment of the DTC at the earliest. (Our analysis of the Parliamentary Standing Committee’s Report is given separately).

2. The Finance Minister has provided no increase in the threshold of Rs. 25 Lakhs to organizations falling under the category “advancement of any other object of general public utility” u/s 2(15). He has further proposed and with retrospective effect from 1st April 2009 (in other words applicable for financial year 2008-09 and subsequent fiscal years), that Section 10(23C), Section 13 and Section 143 of the Income Tax Act be amended to ensure that such organizations do not get benefit of tax  exemption in the year in which it’s receipts from commercial activities exceed the threshold of Rs. 25 Lakhs, whether or not the registration or approval granted or notification issued is cancelled, withdrawn or rescinded.

3. No tax deductions shall be allowed under Section 80G or Section 80GGA for cash donations in excess of Rs. 10,000/-. As per proposed new sub-section (5D) to Section 80G and proposed new sub-section (2A) to Section 80GGA of the Income-tax Act, “no deduction shall be allowed in respect of any sum exceeding ten thousand rupees unless such sum is paid by any mode other than cash”. These amendments to Sections 80G and 80GGA will take effect from 1st April, 2013 and will, accordingly, apply in relation to the financial year 2012-13 and subsequent fiscal years.

4. The Service Tax provisions in the Budget detail out 17 areas (a negative list) in which service tax will not be charged but for absolutely everything else that involves a service, there will be service tax @ 12 % (plus cess) instead of the earlier 10% (plus cess). The negative list (i.e. services not chargeable to tax) includes pre-school and school education, recognized education at higher levels and approved vocational education, renting of residential dwellings, entertainment and amusement services and a large part of public transportation including inland waterways, urban railways and metered cabs. The Finance Minister has specified that in addition to the negative list, there is a list of exemptions which include health care, services provided by charities, religious persons, sportspersons, performing artists in folk and classical arts, individual advocates providing services to non-business entities, independent journalists, and services by way of animal care or car parking.

(Noshir H Dadarwala: Nosir H Dadarwala is the Chief Executive of the Centre for Advancement of Philanthropy (CAP) based in Mumbai.)

Noshir H. Dadrawala

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