Only chartity with true cause to get tax relief

Only charity for a true cause will now be treated as eligible for tax breaks. The Central Board of Direct Taxes has streamlined the definition of “charitable purposes” to exclude institutions involved in trade, commerce and business and related services from its purview. Accordingly port trusts, publishing houses and sports associations, including the Board of Control for Cricket in India, which are registered as charitable trusts will now have to start paying taxes.

Section 2 of the Income Tax Act 1961 defines “charitable purpose” as including relief of the poor, education, medical relief, and the advancement of any other object of general public utility, and organisations registered as such trusts get a blanket tax exemption on their income. But concerned by the gross misuse of this provision by various organisations, the Board has added a new proviso to the Income Tax Act which states that the “advancement of any other object of general public utility shall not be a charitable purpose if it involves the carrying on of trade, commerce and business.”

The CBDT in a recent circular has stressed that whether an entity, registered as a charitable trust, is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity. But an institution working for the relief of the poor will continue to get tax breaks, even if they carry out commercial activities if the business is incidental to its objectives and it maintains separate books of account for the purpose.

In another major concession, chambers of trade and commerce, registered as charitable trusts will also continue to be exempted from tax. The department has said the principal of mutuality will also be used to determine the institution’s objectives. “If trading takes place between persons who are associated together and contribute to a common fund for the financing of some venture or object and have no dealings or relations with any outside body, then any surplus returned to the persons forming such association is not chargeable to tax,” the circular said.

Source: The Financial Express