When charity is a tax on society

 The recent controversy regarding admission to medical and engineering colleges and that seats could be available to the highest bidder raises some doubt about the functioning of charities in general.

 Religious charity has been providing relief to the needy and the poor. But it falls within the personal conduct of an individual. The state does not bear any financial cost. Modern secular charity as we know it today stands on a different footing in that the state has a substantial role to play.

 Apparently, a secular charitable organisation is perceived to entail no cost to the state and society. An important aspect of regulating charities is contained in the Income Tax Act. This is to encourage charity.

 At the same time, it empowers the state to stipulate that money is actually spent on charitable work. As it stands today, any income of an organisation, trust or other body, suffers no tax on its income provided 85 per cent of its income is spent on charity for which such entities are set up.

 In case it is necessary to save more for capital expenditure like the augmentation of facilities, intimation is only required to be filed. Thus, the tax foregone on the income of the charitable organisation is what it costs the state and society in general to support a secular charity.

 There is another aspect to it and that is the treatment of donation in the hands of the donor. For example, an individual donor, which includes large corporate houses, is allowed a tax concession in that 50 per cent of such donations qualify for tax relief.

 Thus, a company that pays Rs 1 crore is allowed to deduct 50 per cent of the value, that comes to Rs 50 lakh. Translated into tax at 35 per cent, this would work out to Rs 17,50,000. It can now clearly be seen that what appeared to be no one