Enhanced scrutiny, modified auditors’ report and new return form part of exercise to curb misuse of tax exemption
Scrutiny of cases where misuse of tax exemption has been noticed and modifications in reporting procedures to capture their activities, funding patterns and income are among measures taken for streamlining procedures. The Directorate of Exemption has already identified a substantial number of cases, which are being selected for scrutiny. These cases pertain to the new proviso added to section 2(15) of the Income Tax Act, applicable from 2009-10.
The new norm disentitles tax exemption to any trust or society, engaged in the advancement of any object of general public utility, if it collects fees or other charges for services rendered in the nature of business, commerce or trade.
| NOOSE TIGHTENING ON CHARITABLE INSTITUTIONS |
| * Intensified scrutiny of cases misusing tax exemption |
| * Refund claim, investment, income from business under scanner |
| * Auditors’ report to cover activities, donors’ details, exemption claims and utilisation of funds. |
| * New return form to facilitate e-filing and donation details |
The department noticed that despite changes in law, a large number of entities continue to claim the exemption under sections 11 and 12 of the Act. The Directorate of Exemption now wants the exercise of selecting these cases for scrutiny to be carried out by the respective chief commissionerates.
The directorate has suggested a criteria for selection of cases during the current year. It includes quantum of refund claim, quantum of investment, gross receipts and income from business and profession.
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Modifications in Form No 10-B associated with the auditors’ report for charitable institutions has also been planned to get full details of activities of these entities. The proposed modified features include disclosure of nature of charitable activities and places of primary business.
Further, complete information with regard to donation by both internal and external donors with details of Foreign Contribution Regulation Act (FCRA) approvals would also be required in this format.
Details of exemption claims made simultaneously under different provisions, year-wise break-up of accumulation and utilisation of funds, information in respect of cash transactions, Tax Deducted at Source (TDS) compliance and other business transactions would have to be furnished once Central Board of Direct Taxes (CBDT) approves this new form.
A new income tax return form for public charitable trusts is also being prepared by the directorate to facilitate comprehensive reporting of their income and expenditure. It would facilitate e-filing and help in selecting cases for investigation and would also provide details of foreign, anonymous and corpus donations, donation in kind and FCRA approvals.
CBDT Chairman Sudhir Chandra told Business Standard the measures were being taken to bring the administrative structure associated with charitable entities in tune with the Direct Taxes Code (DTC) provisions. These non-profit organisations are proposed to be dealt with differently under the DTC, likely to come into force from April next year. Under DTC, surplus income and capital gains of these entities are set to be taxed at the rate of 15 per cent.