Monday, 29 August 2016

Substantial Drop In Foreign Contributions

In a press report based on a RTI application filed by, a media portal, it is now confirmed that FCRA funds for the fiscal year 2014-15 were only Rs 8,756 crores compared to Rs 13,115 crores during FY 2013-14 -- a reduction of over 33% in funding.

State-wise too funding for most states has come down. The National Capital, Delhi has witnessed a huge drop of more than fifty per cent. Tamil Nadu and Andhra Pradesh are the other two states where FCRA funds have dropped extensively.

Reportedly, the impact has been felt mostly by advocacy and human rights associations.

Tax Treatment Of Business Income Of Charitable Institutions

Charitable institutions falling under the category: “advancement of any other object of general public utility” operate in perpetual fear that if their income from sources or activities which could be treated as “commerce, trade or business” cross the boundary line of 20% of total income (earlier this was a sum of Rs 25 lakhs) the Income tax officer would only be too happy to serve a show-cause notice why registration u/s 12AA (tax exemption) should not be cancelled.

The Central Board of Direct Taxes (CBDT) has recently issued instructions to all Income Tax Officers vide a circular No. 21/2016 on 27th May, 2016 that in case a charitable institute crosses this limit, then while its income for that year would not be treated as tax exempt and would be subjected to taxation, however its registration (u/s 12AA) for that year should not be cancelled. In case, in the following year, the income remains within the permissible limit, the entity will be treated as charitable for that year. 

In other words, merely on the basis of excess receipt from commercial activity beyond the cut-off (20% of total receipts during the financial year), exemption u/s 12AA should not be cancelled.

The circular also states that this is important so that such one-time taxation of a charitable institution should not result in unintended taxation on accreted income under the new section 115TD, which could result in additional tax liabilities.

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