Implications of the Budget & Finance Bill 2012 on Charitable Organizations in India

20 March 2012

Update provided by Noshir Dadrawala of the Centre for Advancement of Philanthropy.*

The Minister of Finance, Mr. Pranab Mukherjee, presented the Union Budget for 2012-13 and the Finance Bill 2012 on March 16, 2012. Networks of voluntary organizations in India like the Voluntary Action Network of India (VANI), Centre for Advancement of Philanthropy (CAP) and many others met with Mr. Mukherjee and submitted memorandums requesting certain legitimate reliefs and more enabling tax provisions for India's dynamic and evolving voluntary/nonprofit sector. However, all petitions seem to have fallen on deaf ears.

Budget Highlights

The Direct Tax Code (DTC) has not been enacted as yet. The Parliamentary Standing Committee submitted their report on March 9, 2012. Mr. Mukherjee said that he will examine the report expeditiously and take steps for the enactment of the DTC at the earliest.

The Minister of Finance has provided no increase in the threshold of Rs. 25 Lakhs to organizations falling under the category "advancement of any other object of general public utility" u/s 2(15). He has further proposed (effective retroactively April 1, 2009), that Section 10(23C), Section 13 and Section 143 of the Income Tax Act be amended to ensure that such organizations do not get benefit of tax exemption in the year in which it's receipts from commercial activities exceed the threshold of Rs. 25 Lakhs, whether or not the registration or approval granted or notification issued is cancelled, withdrawn or rescinded.

No tax deductions shall be allowed under Section 80G or Section 80GGA for cash donations in excess of Rs. 10,000/-. As per proposed new sub-section (5D) to Section 80G and proposed new sub-section (2A) to Section 80GGA of the Income Tax Act, "no deduction shall be allowed in respect of any sum exceeding ten thousand rupees unless such sum is paid by any mode other than cash." These amendments to Sections 80G and 80GGA will take effect April 1, 2013 and will apply in relation to the financial year 2012-13 and subsequent fiscal years.

The Service Tax provisions in the budget outlines 17 areas in which service tax will not be charged. For items not mentioned in the exclusion list but involve a service, there will be a service tax of 12% (plus cess) instead of the earlier 10% (plus cess). Exclusions to the service tax includes pre-school and school education, recognized entertainment and amusement services and a large part of public transportation including inland waterways, urban railways and metered cabs. The Minister of Finance has specified that in addition to the exclusion list, there is list of exemptions which include health care, services provided by charities, religious persons, sportspersons, performing artists in folk and classical arts, individual advocates providing services to non-business entities, independent journalists, and services by way of animal care or car parking.

* The Author is Chief Executive of the Centre for Advancement of Philanthropy (CAP). This is a matter that has affected scores of charities all across India and requires advocacy at the highest level with the Ministry of Finance. CAP is mobilizing the opinion and support of both tax experts and those affected.