CBDT's extensive scrutiny of NGOs

Tax returns of 100,000 entities under scanner, as preparation for DTC, say officials.

The income tax department’s headline-making notices to non-governmental organisations (NGOs) associated with Kiran Bedi, the ex-police officer who is member of social activist Anna Hazare’s team, is part of an extensive national exercise, say officials.

The exercise being carried out by the Central Board of Direct Taxes (CBDT) to detect tax evasion by all such entities, a senior official told Business Standard.

“About 100,000 NGOs have filed tax returns in 2010-11 and the department has started picking up the cases for scrutiny on the basis of certain criteria relating to the type of NGOs and financial activities beyond a specified limit,” he added, while declining to provide details.

The charitable activities of NGOs associated with relief to the poor, education, medical relief, protection of the environment and protection of archaeological monuments and any other purpose of general public utility are not taxable. Commercial activities of NGOs in any other purpose of general public utility, however, are taxable, said the official.

“We are taking action under this provision of the Income Tax Act and this is going to happen on an extensive basis. Notices to Kiran Bedi’s NGOs have gone under this exercise,” he said.

Under the I-T Act, ‘charitable purpose’ includes “the advancement of any other object of general public utility”. However, the advancement of any other object of general public utility is not a charitable purpose if it involves the carrying on of any activity in the nature of trade, commerce or business. Or, any rendering of service in relation to any trade, commerce or business for a cess or fee or other consideration, irrespective of the nature of use or application, or retention, of the income from such activity, if receipts from such activity is more than the specified limit in the previous year.

The Finance Act, 2011, raised the specified limit from Rs 10 lakh to Rs 25 lakh for such activities. The official said under the proposed Direct Taxes Code (from April 1, 2012), the surplus income of NGOs were slated to be taxed at 15 per cent and the department was conducting the current exercise to prepare a map for handling these entities in the new taxation mechanism.

A study commissioned by the government put the number of not-for-profit entities at 3.3 miliion till 2009.

The actual number could be much larger now, as the study, commissioned in 2008, took into consideration only those registered under the Societies Registration Act, 1860 or the Mumbai Public Trust Act and its variants in other states.