Non-profit organisations (NGOs) are jittery about the possible inclusion in the coming Union Budget of the earlier recommendations on the Direct Taxes Code pertaining to the sector.
Some hope has been generated in the sector by the report of Parliament's standing committee on finance, headed by Yashwant Sinha, which recommended dropping many of the proposals the NGOs had objected to.
If the DTC is implemented minus the Sinha panel views, it would be the end for most NGOs, the latter feel.
"It is like satta (gambling on numbers). While the committee has taken a balanced view on the DTC recommendations on NGOs, we are all guessing what the finance minister would decide," says Mathew Cherian chief executive of HelpAge India.
Among the worrisome proposals for NGOs are one that NGOs must spend all the money they get within the same year or have any carried forward subject to tax. And, that all spending has to be reflected in immediate cash outflow and accrued liabilities would not be recognised as expenditure.
While the Income Tax (I-T) Act allows NGOs to save 15 per cent of their funds for an indefinite period and 15 per cent for five years, allowing them flexibility in their planning and expenditure, the DTC as proposed in the government draft says any fund saving over 15 per cent in three years would be taxable. Meaning, the NGOs must be prepared to spend even when not ready to do so.
The Parliament panel shot this down, citing the need for the sector to be sustainable.
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Pushing through such a proposal, said the panel, may rsult in NGOs being "forced to survive precariously from year to year, without any long-range activities or planning".Keep the exiting rules, it said.
If the finance minister ignores the committee report, says Harsh Jaitli, CEO of VANI, an NGO network, most of them would have to close and register themselves under the Companies Act.
Last week, NGOs had also appealed to the minister for restoration of the original clause in the I-T Act, section 2(15), which kept all NGOs exempt from income tax. They wanted removal of the later amendment which excluded some activities from the privilege.
They have asked for raising the limit on money that can be raised through businesses from Rs 25 lakh to Rs 1 crore annually. Alternatively, they have requested that even if they are taxed for earnings from businesses, they should be allowed to retain the status of non-profit entities.