Enhanced scrutiny, modified auditors’ report and new return form part of exercise to curb misuse of tax exemption. The Income-tax (I-T) Department has launched a comprehensive exercise for tightening the administrative mechanism for charitable institutions.
Scrutiny of cases where misuse of tax exemption has been noticed and modifications in reporting procedures to capture their activities, funding patterns and income are among measures taken for streamlining procedures. The Directorate of Exemption has already identified a substantial number of cases, which are being selected for scrutiny. These cases pertain to the new proviso added to section 2(15) of the Income-tax Act, applicable from 2009-10.
The new norm disentitles tax exemption to any trust or society, engaged in the advancement of any object of general public utility, if it collects fees or other charges for services rendered in the nature of business, commerce or trade.
The Directorate has suggested a criteria for selection of cases during the current year. It includes quantum of refund claim, quantum of investment, gross receipts and income from business and profession.
Modifications in Form No. 10-B associated with the auditors’ report for charitable institutions has also been planned to get full details of activities of these entities. The proposed modified features include disclosure of nature of charitable activities and places of primary business.
Further, complete information with regard to donation by both internal and external donors with details of Foreign Contribution Regulation Act (FCRA) approvals would also be required in this format.
Details of exemption claims made simultaneously under different provisions, yearwise break-up of accumulation and utilisation of funds, information in respect of cash transactions, Tax Deducted at Source (TDS) compliance and other business transactions would have to be furnished once the Central Board of Direct Taxes (CBDT) approves this new form.
A new income tax return form for public charitable trusts is also being prepared by the Directorate to facilitate comprehensive reporting of their income and expenditure. It would facilitate e-filing and help in selecting cases for investigation and would also provide details of foreign, anonymous and corpus donations, donation in kind and FCRA approvals.
