Trust and mistrust

"In some countries, such as Bangla­desh, Pakistan, Sri Lanka, and perhaps in Nepal, the recent tendency is to liberalize tax exemption and deductibility from a relatively restrictive base. In others, such as India, the tendency now appears to restrict tax exemption and deductions, though originally India started from a relatively liberal tax regime for nonprofits.” So notes part of the introduction to Philanthropy and Law in South Asia: Recent Developments in Bangladesh, India, Nepal, Pakistan and Sri Lanka.

Published by the Asia Pacific Philanthropy Consortium in September 2007 "to try and encourage and promote philanthropy in the region,” and edited by Prof Mark Sidel, the 87-page booklet has a section on India written by noted philanthropy experts Noshir Dadrawala and Sanjay Aggarwal. The Consortium is headed by Darwin Chen.

"The last few years have seen significant shifts in the regulation of the nonprofit sector and philanthropy in India. This is partly because of the high profile that non-governmental organizations (NGOs) now enjoy in India, and partly as an attempt to overhaul the Indian legal and fiscal regulations relating to NPOs (non-profit organizations) — shifts that in some cases lead toward greater control over the nonprofit sector and its activities and in other cases lead toward greater autonomy for the sector,” write the duo. [The terms NGO, NPO and VO (voluntary organization) are used interchangeably and have no statutory implication, clarifies Dadra­wala.]

Noshir Dadrawala and Sanjay Aggarwal: changes impacting charitable trusts

Among the changes incorporated that will impact charitable trusts in the community and elsewhere are:

Administrative expenses should not exceed 50 percent. "This term (administrative expenses) has not yet been defined in the bill [Foreign Contribution (Regulation) Bill 2006], but the nonprofit sector’s expectation is that the government will seek to include all salaries under administration, which can lead to additional issues and encourage misclas­sification and misreporting, which further weakens accountability.”

Anonymous donations to charitable organizations are no longer exempt from taxation. Religious and religious-charitable organizations are "exempted from this for the time being, in view of widely prevailing practice among devotees of gupt daan, or confidential donation, where the donor tries to avoid revealing his or her identity, in order to earn extra spiritual merit.”

Registration of trusts can be cancelled by the commissioner e.g. Income Tax "where the activities are not genuine or not carried out in accordance with the objects of the trust or institution.”

In a recent judgment the Delhi High Court has ruled that "all nonprofits must apply their income only in India. Failure to comply with this requirement could lead to revocation of tax exempt status. The Delhi High Court’s judgment has simply reconfirmed the longstanding view held by the income tax authorities that an important condition for exempting the income of a nonprofit organization from tax is that the income must be applied (spent or used) or accumulated in India. If a part of the income of the organization is applied for a charitable purpose outside India, the income would be liable to tax. However, the rest of the income applied in India would be exempt from tax, if all other conditions are fulfilled.”

Under the Right To Information Act a person can seek information from NGOs that are substantially financed by the government.

The Maharashtra Government has introduced "a new Temples/Religious Institutions Management and Regulation Bill 2006 with a view to control some extremely cash-rich temples. However, the Bill was strongly opposed on the principle that ‘Government may regulate but should not control’ religious or charitable institutions and has not yet been enacted.”

Charitable organizations can "invest in shares of public sector companies as also acquire equity shares of a ‘depository.’”

If the Home Ministry rejects the registration of an organization under the Foreign Contribution (Regulation) Act they will now have to state the reasons for doing so. This was not required to be done earlier.