At least 2.17 lakh NGOs, charitable and religious trusts will have to apply for re-registration with the Income Tax (I-T) Department, which will look at past records and work objective of these organisations and decide whether they should be allowed tax exemptions.
The whole exercise of re-validation/re-registration following the recent amendment to I-T laws has raised concern among both NGOs and the already overburdened tax officials, sources said.
The amendment in Section 12A and the newly introduced Section 12AA of Finance Bill, 2020, do away with perpetual registrations of charitable organisations and NGOs with the I-T Department. From June, all existing registered organisations will need to apply for fresh registration, which will now be renewed every five years.
Charitable and religious institutions approved under Section 10 (23C) and Section 80G will also have to apply for re-registration.
As per the Finance Bill, all applications for re-registration have to be made between June and August this year.
While I-T officials are waiting for modalities of the re-registration process, according to the amendments, an organisation can be denied renewal of registration even for violations under other laws “as may be deemed material for the purpose of achieving its objectives”.
An official told The Indian Express that NGOs, charitable trusts and religious institutions whose FCRA (Foreign Contribution Regulation Act) licences have been cancelled by the Ministry of Home Affairs (MHA) will be denied registration under the new I-T law. Similarly, NGOs that have violated other laws under any state public trust Act, Registrar of Societies, Prevention of Money Laundering Act, among others, will not be approved by the I-T Department.
Besides, the department is likely to go through trust deeds of all institutions applying for re-registrations, nature of their work, and previous financial records before approving them.
Noshir Dadrawala, programme director, Legal & CSR Compliance, at the Centre for Advancement of Philanthropy, said: “There is no provision of surrender of FCRA licence, hence in a lot of cases organisations have stopped filing annual returns so that their licence can be revoked. So mere cancellation of FCRA licence cannot be a reason for cancellation of registration under I-T laws. This is unconstitutional. This will open a Pandora’s box for harassment and selective targeting of certain NGOs.”
The MHA has de-registered 14,500 FCRA-registered NGOs in the last five years. In 2019 alone, registration of up to 1,808 NGOs was cancelled for non-submission of annual returns for 2017-18.
Dadrawala said re-registration under I-T laws will add to compliance burden of the voluntary sector.
“There is already a lot of apprehension, not only within the voluntary sector but also the tax department, which is overburdened due to limited resources. If I-T Department does not carry out this process as a routine exercise and starts looking into trust deeds, work objective and other documents of the institutions, it is going to be chaotic,” said Dadrawala.
He also said violations under other laws should not be a reason for denial of I-T exemptions.
According to I-T officials, the purpose of re-registration with the IT department is to create a national register of all charitable/religious institutions and weed out inactive and defunct charitable institutions. Registration at present is issued and recorded locally. The I-T Department is also planning to issue an unique identification number to these institutions. “We estimate at least 50 per cent institutions registered currently with IT Department for exemptions will be weeded out during re-registration,” an I-T official said.
Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP, said: “Typically, these institutions are allowed exemption under Sections 11 and 12 of I-T Act. So the consequence of losing this registration or not applying for re-registration shall be that the institution will lose this tax exemption and the surplus generated by them will be subject to tax in India. Even expenditure by these trusts may get disallowed, as they won’t qualify for deduction.”
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