MUMBAI: The Budget proposed a series of amendments that would cost the charitable trust dearly for even the smallest mistake — such as a delay of several days in applying for an extension. Tax The exemption may be forfeited if there is a delay in submitting the IT return.
Tightening controls will make the already difficult existence of Commission Even more difficult, state experts.
Due to a number of proposals, the exit tax sword hangs over charity funds. According to Gautam Nayak, tax partner at CNK & Associates, “The most problematic amendment is the one that if a trust fails to apply for a timely renewal of registration, it will be taxed at the maximum rate in the market. fair. its property value. This will completely destroy trusts that commit even the slightest error in applying for such an extension only a few days late.”
Unregistered charitable trusts despite being in existence for many years have so far not been denied exemptions in pending reviews of previous years. This benefit is being snatched away. Nayak adds: “Old trusts that now want to register would be at risk of being taxed within the previous ten years.
Currently, charitable trusts are responsible for paying additional income tax (exit tax) on their ‘accumulated income’, that is: the fair market value (FMV) of the property minus go FMV of debts, upon breach of specified conditions, such as conversion to non-charitable or transfer of assets to any non-charitable organization.
“Budget proposals expand the scope of exit taxes. Any delay in submitting an application/re-applying for tax exemption will be treated as if the charitable fund had been converted into a non-charitable fund and an exit tax would be activated. Sheetal Shah, associate partner of EY-India, says the tax is applied at a maximum marginal tax rate of 34.94%.
“Another amendment would severely disadvantage charitable trusts, which collect donations and then distribute to trusts engaged in grassroots activity. charity, is that only 85% of donations to other trusts will now qualify for an exemption, instead of the current 100%. This modification was to close a so-called loophole whereby chained contributions could be made from one trust to another, each trust in the chain claiming a 15% exemption. Unfortunately, due to a small number of misuse, a large number of genuine trusts will be affected and donations between trusts may be exhausted,” Nayak pointed out.
“If the charity files a tax return past due or late, it will lose its immunity. So there is no incentive for such entities to file updated tax returns (by providing additional taxable income when filing the boost tax) as they would not be eligible for the exemption,” explains Shah. .
Tightening controls will make the already difficult existence of Commission Even more difficult, state experts.
Due to a number of proposals, the exit tax sword hangs over charity funds. According to Gautam Nayak, tax partner at CNK & Associates, “The most problematic amendment is the one that if a trust fails to apply for a timely renewal of registration, it will be taxed at the maximum rate in the market. fair. its property value. This will completely destroy trusts that commit even the slightest error in applying for such an extension only a few days late.”
Unregistered charitable trusts despite being in existence for many years have so far not been denied exemptions in pending reviews of previous years. This benefit is being snatched away. Nayak adds: “Old trusts that now want to register would be at risk of being taxed within the previous ten years.
Currently, charitable trusts are responsible for paying additional income tax (exit tax) on their ‘accumulated income’, that is: the fair market value (FMV) of the property minus go FMV of debts, upon breach of specified conditions, such as conversion to non-charitable or transfer of assets to any non-charitable organization.
“Budget proposals expand the scope of exit taxes. Any delay in submitting an application/re-applying for tax exemption will be treated as if the charitable fund had been converted into a non-charitable fund and an exit tax would be activated. Sheetal Shah, associate partner of EY-India, says the tax is applied at a maximum marginal tax rate of 34.94%.
“Another amendment would severely disadvantage charitable trusts, which collect donations and then distribute to trusts engaged in grassroots activity. charity, is that only 85% of donations to other trusts will now qualify for an exemption, instead of the current 100%. This modification was to close a so-called loophole whereby chained contributions could be made from one trust to another, each trust in the chain claiming a 15% exemption. Unfortunately, due to a small number of misuse, a large number of genuine trusts will be affected and donations between trusts may be exhausted,” Nayak pointed out.
“If the charity files a tax return past due or late, it will lose its immunity. So there is no incentive for such entities to file updated tax returns (by providing additional taxable income when filing the boost tax) as they would not be eligible for the exemption,” explains Shah. .
