Re: BUDGET 2007-08: Highlights from NGO Viewpoint
- From: VANI Secretariat
Further to our note detailing Budget analysis sent to you in the evening of 28th February, I am enclosing herewith a fresh note covering amendments proposed in the Finance Bill 2007 effecting NGO’s for your kind reference. The note also analyses various issues and their implications on voluntary sector following the proposed amendments. I am happy to state that VANI had submitted pre-budget memorandum on 12th January, 2007, requesting the government to simplify sections 12A, 80G and 10 (23) (C). Finance Bill 2007 has touched upon some aspects of our recommendations making the aforesaid sections more user-friendly and unambiguous from users’ perspective.
The Pre-Budget Memorandum meeting was organized by VANI in collaboration with FMSF. A number of leading voluntary organisations had participated in the meeting and extended their support to us. A copy of our Pre-Budget Memorandum was sent to all VANI Members and other stake holders of the voluntary sector. Copy of Pre-Budget Memorandum is available on our website and can be accessed by clicking http://vaniindia.org/Download/Amendment%20in%20Budget-2007.pdf for your ready reference.
We have also made a pitch for simplifying the forth coming Income Tax Act (likely to be introduced in parliament in early part of 2008) user friendly for voluntary sector.
Thanking you for all your support and look forward to you for your continued cooperation in taking up the tax related issues and subsequent simplification with the Government in future.
Voluntary Action Network India (VANI)
BB-5, Greater Kailash Enclave - II
New Delhi – 110048, INDIA
Tel.: 0091-11- 29228127 & 41435536
Fax: 0091-11- 41435535
Amendment proposed in Finance Bill 2007 affecting NGOs.
Section 12A of the Income Tax act provides that in order to claim exemption of income
under section 11 and 12 of the act, a charitable or religious trust or institution is should
make an application for registration of the trust/institution in the prescribed from and in
the prescribed manner to the Commissioner of Income tax before the expiry of a period
of one year from the date of creation of trust or the establishment of the institution.
Where such application is made after the expiry of the aforesaid period, the provisions of
the sections 11 and 12 shall apply in relation to the income from the date of creation of
trust if the Commissioner is, for reasons to be recorded in writing, satisfied that the
person in receipt of the income was prevented from making the application before the
expiry of the aforesaid for sufficient reasons.
As per the amended section 12A of the finance bill 2007, in respect of applications filed
on or after 1.06.2007, the provisions of section 11 and 12 shall apply from the assessment
year relevant to the financial year in which application is made. Trust or Institution will
no longer be required to file an application for registration with in one year from the date
of creation or establishment. Consequently, commissioner power to condone delay in
filing of application with in one year to grant registration for past years is also removed.
Condition for charitable or religious trusts or institutions to file for registration within one
year of creation of trust has been proposed to be removed.
This amendment in section 12A simplifies the procedural requirement for registration
of trust and puts onus of availing exemption of Income from Income Tax department
on charitable organisation and institution. If organisations are desirous of availing
income tax exemption then they will necessarily have to file application of registration
under section 11 and 12 from the year they will wish to avail exemption. They will not
be entitled to avail retrospective exemption of income of income tax after satisfying
Commissioner of Income tax. The discretionary power of Commissioner of Income
Tax regarding condonation of delay in filing of application is also curtailed from
giving arbitrary decisions.
Section 10(23C) (iv) provides for exemption of income of certain funds or institution
established for charitable purposes from income tax if it is notified by the Central
government in the official Gazette, likewise section 10(23C) (v) provides that income of
trusts or institution wholly for public religious purposes or wholly for public religious
and charitable purposes is exempt if notified by the Central Government in the official
The power of notification by the Central Government has been substituted by the power
of approval by prescribed authority. Henceforth, the exemption will be available to the
institution or funds if they are approved by the prescribed authority.
Procedural benefit is expected as it may shorten the time period of making application
to the authorities and obtaining subsequent grant of approval. Currently this procedure
takes time as it has to be notified in the official gazette, whereas now approval by
prescribed authority may satisfy the eligibility requirement for receiving exemption.
Section 80G (5) (vi) provides for deduction in respect of donation to certain fund or
institution from the taxable income of donors if the fund or institution is approved by the
Commissioner of Income Tax. Currently there lies no procedure for appeal against the
order of the Commissioner rejecting the approval of institution or fund for deduction
Section 253 of the Income Tax Act has been amended to allow an appeal to be filed
against such orders of Commissioner before the Appellate Tribunal.
Relief to charitable organisations or institutions from any unjust order of the
Commissioner of Income Tax rejecting approval of funds or institution for receiving
donation for deduction purposes to donors.
Voluntary Action Network India (VANI) along with Financial Management Services
Foundation (FMSF) had organised a workshop and based on the recommendations of the
participants had submitted a pre-budget memorandum on 12th January 2007 to the
government. We had requested the government to simplify sections 12A, 80G, and
10(23) (C) of the Income Tax Act for better compliance by NGOs. A copy of the
memorandum submitted to the government was sent to all our members and other
stakeholders of the voluntary sector. It may also be recalled that the pre-budget workshop
was attended by leading voluntary sector organisations and leading chartered accountants
and they had helped us in preparing the memorandum. It is also noteworthy that the
Finance Bill 2007 has touched upon some of the aspects that we had requested for,
making the above mentioned sections procedurally user- friendly and unambiguous.
It may also be noted that the government is planning to amend the Income Tax Act
(likely to be introduced in the Parliament in early part of 2008, and to be effective from
1st April 2008). VANI has already begun working closely with all stakeholders to provide
the government adequate reasons to simply the tax regime for voluntary sector.