Religious trusts not eligible for exemption in DTC

All religious and charitable trusts that promote the interests of religions or castes and currently exempt from payment of income tax or wealth tax stand to lose these benefit once the Direct Tax Code (DTC) comes into effect from April next year.
 
Activities of all such trusts that run temples, mosques, etc and provide free hospitalisation, education, shelters, etc, to  the underprivileged would thus be hit. Further, donations would also suffer as donor will not be able to claim deduction of 50 per cent of the donation from taxable income if the trusts are not nonprofit organisations.
 
The problem say experts, arises from the definition of a non-profit organisation under the DTC, which has exempted such entities like religious trusts, institutions, etc, from income tax so long as their humanitarian activities are not exclusively directed towards specific religion or caste.
 
''I don't think that the people who drafted the DTC have realised the implications of what they have done,'' said supreme court advocate H P Ranina, addressing the media in Mumbai on the issue. ''The provisions were drafted by tax officials without consulting any trustees. No justification has been given for withdrawing the exemptions... I think the IT commissioners want to bring all this to tax.''

All charitable trusts set up before 1 April 1962, for particular religious communities or castes had been exempted from income tax under the The Income Tax Act 1961, which has now been in force for 50 years.

The provision has been withrawn in the new DTC and with the new law taking effect from 1 April, 2012, all existing charitable trusts would have to pay income tax at the flat rate of 30 per cent and wealth tax at 1 per cent.

Trusts such as the 135-year-old Anjuman-I-Islam, which has 1,10,000 poor students from the Muslim community in its fold, will no longer be able to claim the benefits it has enjoyed thus far, since non-profit organisations have been defined as those that do not belong to particular religions or castes, according to Zahir Kazi, president , Anjuman-I-Islam.

That apart, the right to claim income or wealth tax exemption, under the relevant provision under the current Act allowing 100 per cent accumulation of income by public charitable trusts for five years to build, public facilities like hospitals or schools would not be included in DTC.

At present, a charitable trust is required to spend only 85 per cent of its annual income during the next year with the balance 15 per cent allowed to be accumulated for all times to come.