The International Journal
of Not-for-Profit Law
Volume 4, Issue 1, September 2001
Tax Law Changes for Indian NGOs
By Noshir Dadrawala*
Various changes have been made in the Income tax treatment of NGOs in India that are effective from April, 2001. There is a new “spending” requirement to ensure that NGOs in fact use their funds for charitable purposes. Under the new provisions
- Educational institutions enjoying exemption u/s 10(23C)(vi) [i.e., educational institutions that are not wholly or substantially financed by the Government
- Medical institutions enjoying exemption u/s10(23C)(via) [i.e., medical institutions that are not wholly or substantially financed by the Government and have annual income/receipts in excess of Rs.1 crore];
- Notified funds and institutions of national or state importance, established for charitable purposes and enjoying exemption u/s 10(23C)(iv);
- Notified trusts or institutions wholly for public religious purposes or wholly for public religious and charitable purposes and enjoying exemption u/s 10(23C)(v); and
- Charitable and religious trusts enjoying exemption u/s 11,
must spend at least seventy-five per cent of their income in any financial year (i.e., 1st April to 31st March) to avail themselves of income tax exemption.
If the total annual income/receipts of these trusts/funds/institutions exceed Rs.1 crore, they will be required to publish their accounts in a local newspaper and file the same with the income tax department at the time of filing returns. It is permissible to set sums aside for future use for an organization’s tax exempt purposes, but any income accumulated or set apart on or after 1st April 2001 must be set aside for a maximum period of five years only.
*Noshir Dadrawala ia a lawyer and Director of the Indian Centre for the Advancement of Philanthropy, Bombay. He can be reached at Mr Noshir Dadrawala.
** A crore is 10,000,000 Indian Rupees or U.S. $ 212,767.
According to the AccountAid Team, several NGO groups have been demanding for a long time that the Foreign Contributions (Regulation) Act (FCRA) should be repealed. The Government has now apparently granted their wish.
However, FCRA 1976 is likely to be replaced with a tougher law, which is designed to plug existing loopholes. It is expected that this will help ensure that funds are not used for religious conversions or by subversive elements.
The new bill is with the cabinet and is likely to be introduced in the current session of the parliament. FCRA has not been amended since 1985, though these were proposed several times e.g. in 1988 and again in 1995. ICNL will reprint the new bill and comment on it as soon as it is available
For further information on these developments, please contact AccountAid at email@example.com firstname.lastname@example.org, or Noshir Dadrawala of the Centre for the Advancement of Philanthropy in Bombay at Mr Noshir Dadrawala.