Charitable Trusts under Finance Minister’s Scrutiny
The government is considering a proposal to redefine and narrow the concept of “charitable activity” to ensure that only deserving organisations that are actually carrying out humanitarian work are eligible for such benefits. Port trusts, chambers of commerce, and educational trusts which are not engaged in charitable work could lose some of their tax benefits. Once approved, can find a place in the upcoming budget. It will be a good move to ensure that tax benefits are not misused
Section 2 of the Income-Tax Act, 1961, defines “charitable purpose” to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility.
The finance ministry has been concerned for a quite some time that several business organisations register as charitable trusts only to take advantage of the tax benefits under Section 11 and 12 of the Income-Tax Act. The current proposal is aimed primarily at checking the misuse of these tax benefits by weeding out precisely such entities from the definition.
The existence of grey areas in the definition has also led to mounting litigation by the income-tax department, which has contested the claim by several organisations that they are charitable trusts. The government feels that reviewing the definition of charitable activity would also help to prevent such cases from arising.