Government untrusting?
Arbitrary cancellation by and incompetence of the Ministry of Home Affairs affect the functioning of non-profit organizations
Noshir Dadrawala: Charity expertise
MHA sent notices "to 1,441 organizations in AP and received responses from just 299,” whose status is currently "under review.” Where notices were returned undelivered (510 organizations), "their registration stands cancelled!” writes Dadrawala.
For trusts to receive foreign contributions, FCRA clearance is essential. The Act enables government to control the flow of foreign funds to non-profit organizations (NPOs) in India.
Dadrawala points out the following failings in MHA’s functioning that may have caused the mass cancellations:
Understaffed and inexperienced in handling FCRA related matters, disinterested and demotivated.
Electronic compiling of data only since the last few years.
Shifting of offices at least three times resulting in considerable papers being lost.
While allowing that "more than 50% of the NPOs registered under FCRA no longer exist or no longer need foreign funds,” Dadrawala terms the cancellation as illogical, against "all principles of natural justice. The methodology is arbitrary and random.”
The MHA argument is that letters and notices sent are returned undelivered because the address has changed. "Is this a valid reason for cancellation?” queries Dadrawala. "Does MHA have a proper system of recording change of address?”
"NPOs claim that they send their change of address to the MHA and we know for a fact that at times MHA does not even bother to open envelopes and if it does, it simply files letters away without noting the change. All said and done, MHA needs to be told that it must put its act together and with understanding and sensitivity,” contends Dadrawala.
Other relevant information for NPOs in the newsletter:
Dos and don’ts
In principle, a trustee cannot buy the property of the trust himself, and she/he cannot sell any of their properties to the trust either — the law does not go into the question whether the transaction is beneficial or not.
Policy decisions should be supported by resolutions passed by circulars or at board meetings.
A minute book should be maintained and trustees should meet as often as required, or as directed in the trust deed.
In case of a difference of opinion on a policy matter, the majority view may prevail. The dissenting trustees may record their dissent.
Beneficial work by an organization is no excuse for defaulting in submission of accounts or meeting trust and Income Tax Act requirements.
If a trustee acts responsibly and in good faith and with the basic interest of the trust as the foremost objective, he or she is generally protected from liability for errors of judgment.
Administrative costs should be kept within reasonable limits.
CSR windfall elusive
"CSR (Corporate Social Responsibility) has been made mandatory under law, but NPOs (that) were expecting a bumper crop of funds have not been able to harvest even a bushel,” notes Dadrawala in another article. Under CSR large profitable corporates are required to set aside a percent of their profits for welfare work.
Possible reasons cited include:
Private sector companies like Tata, Godrej, Mahindra, Birla have anyway been involved in CSR since decades through their trusts and foundations.
Out of the 16,000 companies affected by CSR, the vast majority have funds between Rs 10 lakhs to Rs 50 lakhs only.
The bulk of funds is with Public Sector Undertakings (PSUs) and they generally have semi-government systems, processes and paper work that many NPOs are not comfortable with.
A few companies are adopting the easier route of making corpus grants to their own foundations or giving it to the Prime Minister’s National Relief Fund.
Several NPOs, especially the smaller ones, are still looking for "donations.” They are unable to realize that companies are mandated under law to implement CSR in programs or projects only with clear ‘needs statements, goals, objectives, output and outcome.’
Losing tax exemption?
"At a time when local grant support from foundations is running low and foreign donors are making an exit, the only manner in which NPOs can think of sustainability is through income generating activities. One would have hoped that the current ceiling of Rs 25 lakhs on ‘business income’ would have been enhanced to one crore rupees. Instead, the Finance Minister has further tightened the screws on ‘business activities,’” wrote Dadrawala in an email, commenting on the "Impact of the Finance Bill 2015 for charitable organizations in India.”
NPOs are kept under threat of losing their tax exemption if income from their "business activity” exceeds Rs 25,00,000 during the financial year. The aggregate receipts from such activity or activities should not exceed 20% of the total receipts of the trust or institution in the previous year. This means that should the total receipts of the trust or institution during the previous financial year (from donations, interest, rent, etc) amount to Rs 1,00,00,000, it cannot have business income in excess of Rs 20,00,000. The fact that a business or commercial activity may have been undertaken to ultimately apply such income for charitable purpose would carry no weight, Dadrawala explained.
Yoga has been brought under the definition of "charitable purpose” as defined u/s 2(15) of the Income tax Act 1961, along with education. Swachh Bharat Kosh and Clean Ganga Fund have been made fully eligible for tax exemption under Section 80 G of the Income Tax Act.