Govt makes life more difficult for charity trusts
Lubna.Kably@timesgroup.com
Mumbai:07.07.2019
The Income-tax Commissioner now has sweeping powers to cancel the registration of a charitable trust or institution if it has violated any requirement under ‘any other law’.
At the time of granting registration under Section 12AA (post which, exemption under the I-T Act is available to the trust), the commissioner has to satisfy himself that the trust has met the requirements of other laws that are material for meeting the objectives of the trust.
Second, a registration already granted can be cancelled by the commissioner if the requirements of such laws were subsequently violated. However, the trust is given an opportunity to be heard.
The consequences of cancellation are onerous. To begin with, its income will no longer be tax-free. The bigger whammy is an ‘exit tax’ will be payable by it on the fair market value of its net assets, at the maximum marginal rate of 42.74%. This will badly impact educational institutions and hospitals in Tier-1 cities like Mumbai that own valuable property — say building or land. In fact, they may not have the funds to bear the exit tax burden, said experts.
“Letting the commissioner decide whether there is compliance or not with any other Act is a dangerous provision. Other laws cannot and must not be enforced through the I-T Act. At best, the commissioner should be allowed to bring ostensible violations to the notice of the relevant authority under that respective Act, who can then decide whether there is a violation and take action,” said Gautam Nayak, tax partner at CNK & Associates.
If its registration is cancelled, a charitable trust’s income will no longer be tax-free and it would also have to pay an ‘exit tax’ on market value of its assets
Lubna.Kably@timesgroup.com
Mumbai:07.07.2019
The Income-tax Commissioner now has sweeping powers to cancel the registration of a charitable trust or institution if it has violated any requirement under ‘any other law’.
At the time of granting registration under Section 12AA (post which, exemption under the I-T Act is available to the trust), the commissioner has to satisfy himself that the trust has met the requirements of other laws that are material for meeting the objectives of the trust.
Second, a registration already granted can be cancelled by the commissioner if the requirements of such laws were subsequently violated. However, the trust is given an opportunity to be heard.
The consequences of cancellation are onerous. To begin with, its income will no longer be tax-free. The bigger whammy is an ‘exit tax’ will be payable by it on the fair market value of its net assets, at the maximum marginal rate of 42.74%. This will badly impact educational institutions and hospitals in Tier-1 cities like Mumbai that own valuable property — say building or land. In fact, they may not have the funds to bear the exit tax burden, said experts.
“Letting the commissioner decide whether there is compliance or not with any other Act is a dangerous provision. Other laws cannot and must not be enforced through the I-T Act. At best, the commissioner should be allowed to bring ostensible violations to the notice of the relevant authority under that respective Act, who can then decide whether there is a violation and take action,” said Gautam Nayak, tax partner at CNK & Associates.
If its registration is cancelled, a charitable trust’s income will no longer be tax-free and it would also have to pay an ‘exit tax’ on market value of its assets
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