Drastic changes in Tax provisions relating to Charitable and Religious Trusts are Not proper
BJP Professional Cell, Mumbai
Smt. Nirmala Sitharaman Madam,
Honorable Finance Minister
Ministry of Finance, North Block,
Shri Anurag Singh Thakur ji,
Honorable Union Minister of State of Finance
Respected Ma’am/ Sir,
Sub: Drastic changes made in Income tax provisions relating to Charitable and Religious Trusts (Trusts/NGOs) are not proper.
In the larger interest of lakhs of NGOs in India who are carrying out excellent work of reaching out to down trodden and supporting them in innumerable ways, we propose to bring to your notice the following :
As per the Finance act 2021 drastic changes are made in the scheme of taxation of charitable /religious trusts. Though intention of the Ministry may be to curb misuse of certain provisions in the scheme of taxation, the amendments will result in harming lakhs of religious and charitable institutions, to say the least, and therefore need reconsideration. We are giving herein below these amendments and our suggestions:-
1. Amendment to provisions relating to putting severe restriction on utilization of Corpus Donations-
a. Original intention of the government is that since corpus donation is exempt – not to be included in income chargeable to tax– any expenditure out of the same shall not be treated as application as per section 11(1) (a)/(b)
b. This purpose can very well be achieved by adding explanation that-
Suggested Explanation 4 in ss. (1) for the purpose of determining the amount of application under clause (a) or clause (b)
i. Application for charitable or religious purposes from the corpus as referred to in clause (d) of this sub-section shall not be treated as application of income for charitable or religious purposes.( full stop)
Proviso stating – ‘provided amount not so treated as application …………………………………………………………………………………….. shall be treated as application…in the previous year in which amount is invested or deposited back into one or more forms or modes specified in ss(5) maintained specifically for such corpus’ is unnecessary and should be deleted .
2. Another needless and harmful amendment to provisions relating to Corpus Donations-
a. A condition is added to hitherto existing clause relating to corpus donation – according to which exemption of corpus donation will be allowed only if it is invested or deposited in one or more of the forms or modes specified in ss.(5) maintained specifically for such corpus.
b. This condition of making investment in specified mode defeats basic purpose of accepting corpus donation as-
i. Corpus donation is for the purpose of making certain heavy expenditure of capital nature and is generally not for purpose of investment only. Spending out of corpus fund for achieving charitable or religious objects as set out in trust deed can not be barred.
ii. There is one variation in corpus donation where total amount of corpus donation as per direction of donor is invested and only income from investment is applied to charitable /religious purposes. This mostly happens in Education or Scholarship Fund, where original donation amount is invested in mostly Bank FD and interest on FD is utilized for paying awards or scholarships to needy, meritorious students. This is possible in case of Corpus Donation to Temple where original amount is invested in FD and out of interest routine expenses of temple are met.
iii. Either of the above practices is accepted as valid for tax exemption purpose so far.
iv. However present amendment made wef 1.4.2022 will result in denial of tax benefit to Corpus donation even if it is spent for specified charitable or religious purpose ( other than for acquisition or construction of immovable property – this only permitted expenditure as per sec 11 ss.(5) ) as when amount is spent for specified purpose it will not be possible to invest the same . There is a clear anomaly and it needs to be corrected.
v. Further, Income Tax Department has lost sight of the fact that, though acquisition of immovable property is a permitted mode as per sec. 11(5) such expenditure is not incurred every year but substantial amount has to the accumulated/saved over several years ( may be 5 to 10 years) so that sufficient fund say Rs. 50 lakhs is accumulated for construction-reconstruction of building/temple etc.
vi. Therefore provisions of clause (d) of ss (1) of Sec 11 as existing upto 31-3-2021 (old provision) should be continued as it is, and condition added wef 1-4-2022 saying – ‘ subject to the condition that such voluntary contributions are invested or deposited in one or more of the forms or modes specified in ss.(5) maintained specifically for such corpus’ should be deleted in to.
3. Not allowing excess spending in earlier years as deduction in subsequent years-
- By Explanation 5 inserted in sec 11(1) excess spending of earlier years shall not be allowed to be set off against current years income.
- It has to be kept in mind that excess spending by NGO occurs in a year its receipts are not sufficient to meet its expenses. In simple word there is a revenue shortfall. In such a scenario NGOs spend out of past legitimate accumulations for expenses which they are not able to postpone to future period.
- Fact to be noted here is such spending in the year of revenue shortfall is for achieving objects of the trust and for no other purpose.
- These are in effect expenses made anticipating future receipts.
- Not allowing setting off of this amount against subsequent year’s surplus is unjust, as it results in denial of opportunity to restore funds of the trust.
- In view of this newly inserted explanation 5 in ss. (1) should be deleted
4. Simlilar amendments made in sec 10(23C) need amendment, need to be deleted.
5. Filing of statements by Trusts accepting donations u/s 80G [Sec 80G (5) cl (viii) and (ix) and Rule 18AB]
- The trust or institution having approval u/s 80G(5) will have to submit electronically to Pr. Director or Director General of Income –tax ( Systems) statement containing details of donations received by it in respect of each financial year, beginning with the financial year 2021-22 in Form No 10BD.
- Form No 10BD will have to be filed electronically on or before the 31st May immediately following the financial year in which donation is received
- Donations will have to be classified as Corpus , specific grants and other donations.
- Similarly donation will have to be categorized as in various categories as received in cash, received in kind or by electronic mode including a/c payee cheque/draft or received by other mode.
- Trust will have to furnish certificate of donation in Form No 10BE specifying amount of donation received during financial year from such donor, beginning with the financial year 2021-22.
- Certificate in Form 10BE will have to be furnished to the donor on or before the 31st May immediately following the financial year in which donation is received. Certificate will have to be down loaded from web portal of the Income tax department.
- Late fee for default- If statement in Form no.10BD is not delivered in time or certificate in form 10BE is not furnished in time then a late fee of Rs.200 per day is payable. Maximum amount restricted to the amount of donation. ( sec 234G)
- Penalty for failure to furnish statements, etc.
As per section 271K minimum penalty of Rs. 10000 and maximum penalty of Rs. 100000 is prescribed for non-submission of statements of donation in form no 10BD , and for non furnishing of certificate in Form No 10BE in time.
- Comment and suggestion-When from or about A.Y.2007-08 onwards system of online submission of Income Tax return started, submission of copies of documents in support of claim of deduction is discontinued. At present Income Tax Department is not cross verifying proof for deduction under most of the sections under Income tax Act, including section 80C, 80 D etc., then why department is proposing elaborate system of cross verification of deduction u/s 80 G . It is totally contrary to the principle of ‘sabka vishwas’. Even now assessee is required to submit details of donation eligible u/s 80G in the return form. These details include name and PAN of donee trust. If need be, such claims can be verified by Income tax department on sample basis. Therefore there is no justifiable reason why new and elaborate system of collecting information about donations should be started. Also one should not lose sight of the fact that several NGOs are very small, have receipts and expenses upto Rs.10 lakhs and even their major donations are also of small amounts. Such as of Rs.500, Rs.1000 etc. Asking NGOs to submit details of even small, numerous transactions, and trying to match them with claim by assessee u/s 80 G is a needless exercise. Hence provisions asking NGOs to submit details of donation on the line of TDS returns (statements) should be deleted, should not be implemented. If deletion is not thought desirable then some threshold of reporting donations above Rs. 25000 be provided or only trusts having receipts in previous year exceeding Rs 50 lakhs be asked to furnish such statements.
6. Amendments made by Finance Act 2018 – It may not be out of place to point out here that , amendments made by Finance Act 2018 in respect of NGOs also need reconsideration, which are concerning disallowance of claim of application of income for non compliance with TDS provisions and specifying limits for cash expenditure due to following reasons:
As per Finance Act, 2018, NGOs have to comply with the provisions of deducting and depositing TDS in government treasury and have to make all payments exceeding Rs 10000 by cheque, bank draft, banking channel etc. Cash payment beyond this limit is not permitted. Failure to do so will lead to losing of exemption benefit for the relevant year to that extent. In this connection it is pointed out that in case of Individual or HUF assessee TDS provisions (except TDS on salary) are made applicable when they are liable for tax audit u/s 44AB. Meaning thereby small individual and HUF assessee having sales/ turnover upto Rs. 1 crore (limit for profession is Rs. 50 Lakhs) is not required to comply with such TDS provisions.
Since most of the small NGOs cannot afford to take services of professional accountants / qualified accountants, throughout the year, compliance with the provisions of TDS and cash payment poses great difficulty. Also , when carrying out small or marginal level of activity , they have to obtain services or goods such as stationary, medical purchases, clothes to be purchased for free distribution costing Rs. 12000 (for example ) from a small retail shop or small medical store or small general store or small service providers. Mostly such small retail shops, service providers do not accept cheque. Payment by NEFT or by cheque is not always possible, especially in emergencies when medical purchases are to be made, or payments are to be made to hospitals etc. Therefore it is suggested that these provisions should be made applicable only to such NGOs who have gross receipts exceeding Rs. 50 lakhs in preceding financial year so that small NGOs are saved from compliance burden due to these provisions.
7. Most of the amendments as mentioned above are not rational, will put ( or they put) unnecessary financial burden or compliance burden on NGOs , also it is felt that just because of these amendments massive tax collection is not possible , but they are tedious enough and going to adversely affect ( or are adversely affecting) NGOs . Especially smaller NGOs.
8. In addition to above points we have to say that Income Tax Return form ITR 7 is very complex and Over last 2-3 years it made more complex. It needs to be simplified.
Therefore in the interest of lakhs of Trusts/NGOs and in the interest of general public we hope you will consider our suggestions favorably.
CA Shailesh R Ghedia
President: BJP Professional Cell,
Mob No.: 9869437888
CA Shri Arunsingh ji, MP
BJP National Gen Secretary
Adv Shri Mangal Prabhat Lodha ji, MLA
President, Mumbai BJP.
Shri Gopal Shetty ji, MP
Smt Poonam Mahajan Rao Ma’am, MP
Shri Manoj Kotak ji, MP