The Direct Taxes Code (DTC) Bill has proposed to tax non-profit organisations (NPOs) with income above Rs1 lakh at 15 per cent, while those below this threshold will be exempted.
“The provisions such as non-registration of existing NPOs, availability of a time period of three years for utilising surplus funds and keeping religious trusts out of the tax net have been inserted as stated in the revised discussion paper. The basic income-tax exemption limit of Rs1 lakh has also been provided to NPOs,” said Sunil Shah, partner at consultancy firm Deloitte.
NPOs already registered under the Income Tax Act need not re-register under DTC but will only have to provide some additional information. Tax-free accumulation of 15 per cent of surplus or 10 per cent of gross receipts, whichever is higher, for a period of three years has been permitted.
Mercantile system of accounting for NPOs registered under section 25 of the Companies Act is prescribed as against the cash system for other NPOs.
NPOs which are public religious institutions and are registered under the Code will be exempt. NPOs of public importance will be exempt subject to notification in accordance with the guidelines.
According to Section 10 (23C) of the Income Tax Act, any trust or institution that works wholly for public religious and charitable purposes and is approved by a chief commissioner or director general is tax-exempt. The religious purpose has been removed from exemption eligibility in the Code. It will exempt income of only those bodies which are registered under any Act of the Centre or the state government, and administer a religious trusts, endowments or societies. This is equivalent to Section 10 (23BBA) in the IT Act.
It has proposed to retain the definition of activities pursued by the NPOs as ‘charitable purposes’, rather than ‘permitted welfare activity’ to “maintain continuity and minimise litigation”.
Any sum received by an NPO in the last month of a financial year would not be taxable if it is deposited in a specified account and spent by the end of the next financial year.
The Bill also proposes to tax anonymous donations at 30 per cent, against the rate of 15 per cent applicable to other donations.
