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AccountAid Capsules 2003 (132-144) |
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140: Profit-making or profit-distributing? 139: More on ICAI Technical Guide 133: Dr. Kelkar’s Report – 80G Limit 132: Dr. Kelkar’s Report – 80G Deduction |
144: Foreign Banks and NGOs(3-Sep-03) Several foreign banks are now offering special customised
services to charities, including assistance with FCRA formalities. Flattered by this irresistible wooing, some NGOs are even shifting
their FCRA accounts to distant metropolitan locations, hundreds of kilometers
away from their operational area. What is the reason for this sudden interest? Is it because the banks have suddenly become conscious of their duty
to the society? Or could it be the idle money sitting in some charity
accounts that the banks are interested in? Not likely. Moreover, the banks are chasing only those NGOs which get
foreign funds. It seems that a critical factor in this mo(me)netary romance is the commission on foreign remittances. So if you are approached by a banker for shifting your FCRA account,
ignore the sweet talk. And focus on making sure that your NGO is not
short-changed in the deal. [References: 'Foreign alms to NGOs up 15.6%' Finance Page,
Economic Times, Mumbai, 3rd September 2003. Web edition at http://economictimes.indiatimes.com
] 143: More on Shri Tirupati(22-Aug-03) The Economic Times survey also gives some more information about Shri Tirupati Devasthanam's
finances. The income figure of Rs.532 crores
includes: a. Rs.188 crores from direct offerings (hundi collections) b. Rs.145 crores from interest on deposits c. Rs. 50 crores from sale of laddoos d. Rs.20 crores from sale of hair The temple's assets include Rs.560 crores in
fixed deposits and about five tonnes of gold (worth
app. Rs.250 crores). The trust runs numerous colleges and schools in surrounding areas and
another college in Delhi. It also runs a 250-bed hospital (BISRR), offering
free treatment for complex medical problems. [References: Also see AccountAid Capsule 141, 142 "Temple of boom: God's the all-mighty money
spinner", Economic Times, January 6, 2003. Year-end investments of Rs.560 crores should not be correlated with annual interest
income. - Ed. A crore is equal to 10
million. Current exchange rate: US$ 1= Rs.45. – Ed.] 142: Temple Donations(21-Aug-03) According to a survey published in Economic Times, some of the larger
temples in India reported the following earnings in 2001-02: 1. Shri Tirupati Devasthanam
Trust, Andhra: Rs.532 crores 2. Shri Shirdi Saibaba
Sansthan, Maharashtra: Rs.62 crores
3. Shri Sabarimala Temple, Kerala: Rs.21 crores 4. Shri Arasuri Ambaji
Mata Devsthan Trust, Gujarat: Rs.15 crores (app.) 5. Shri Siddhi Vinayak
Temple, Mumbai: Rs.11 crores The money is mainly used for the maintenance of temples, religious
activities. However, significant amounts also go for non-religious charitable
activities. Some of these temples are under Government administration. All are
exempt from tax on their income. In most cases, donors are not entitled to any tax incentives on the
amounts donated, as religious charity is not tax-deductible in India. [References: "Temple of boom: God's the all-mighty money
spinner", Economic Times, January 6, 2003. The article is not as
irreverent as the heading may suggest. - Ed. A crore is equal to 10
million. Current exchange rate: US$ 1= Rs.45. – Ed. A deduction is allowed to the donor under section
80G only where a temple, church, mosque etc. is notified as a place of public
renown and the money is required for repair or renovation of the structure. -
Ed.] 141: Contribution in kind(14-Aug-03) Two persons have been arrested for stealing 10 kgs
of hair offered by the devotees at Shri Venkateshwar
Temple in Andhra Pradesh, India. This is the fifth such attempt in recent
years. Devotees get their heads shorn as part of their religious vows at Thirupathi. The hair is graded and sold by the temple
trust through public auctions. According to the reporter it is estimated to
fetch Rs.50 crores per year. The trust is managed
by the Government. [References: ‘A bad hair day for two Andhra thieves’, p.1,
Pioneer, Delhi. 14-August-2003 AccountAble
61: Tax Relief on donations. The donation of hair is not tax-deductible. ‘Biggest Donation of Hair’, P.60, Guinness World
Records 2001. ISBN 0-85112-102-0 The hair is used for making wigs. – Ed.] 140: Profit-making or profit-distributing?(18-Jun-03) Can an NGO make profits? Or generate income? People often get confused
on this issue. The ICAI’s NGO guide provides some useful clarity: “’Not-for-profit’ does not mean the organisation must run at a
perpetual loss…. An NPO may certainly derive profit from extension of
services or sale of products. What it cannot do is distribute the profits
among trustees…etc. In other words, the NPO may be ‘income-generating’ or
‘profit-making’, but it cannot be ‘profit-distributing’.” [References: Para 2.8, P. 9; ‘Technical Guide on Accounting
and Auditing in Not-for-Profit Organisations’,
2003, Research Committee of ICAI] 139: More on ICAI Technical Guide(17-Jun-03) The ICAI’s ‘Technical Guide on Accounting and Auditing in
Not-for-Profit Organisations’ has generated a lot
of excitement in the NGO and accounting circles. Mrs. Rozmin N. Ajani, FCA, has drafted the
comprehensive guide. The draft was thoroughly reviewed by the ICAI research
Committee, and finalized only after inviting comments from a wide section of
people. Here is what the Lepra India web-site says
about the effort: “LEPRA India sets recommended guidelines. Mrs Rozmin Ajani, Head of Finance & Administration for LEPRA India, was asked to give a presentation on how Non-Profit Organisations within India raised funds, at a conference held in Bangalore in August. This was an extremely prestigious conference attended by Government, Finance Professionals, and representatives of other Non Profit Organisations. As a result of Mrs Ajani’s presentation, she was requested by the Institute of Chartered Accountants for India to produce accounting and auditing guidelines to be used by all Non-Profit Organisations in India. To assist her in this task she recently spent 10 days in England with Ian Gibbons, Finance Director of LEPRA, formulating the content needed for the guidelines and look at the procedures followed in England under the Statement of Recommended Practice. This is a extremely important assignment and following on from the input that LEPRA India had into the last World Bank loan shows the continued high regard that LEPRA is held in India.” [References: ‘Technical Guide on Accounting and Auditing in
Not-for-Profit Organisations’, 2003, Research
Committee of ICAI http://www.lepra.org.uk/newsarchive2002.html] 138: Working outside India(13-Jun-03) Can a non-profit registered in India spend money on international
welfare? Yes. There is no restriction on spending the money under FCRA. Will the Income Tax people also allow this as an expense? Only if the money is spent to ‘promote international welfare in which
India is interested…’. [References: Sec.11(1)(c)(i) of Income Tax Act, 1961. Applicable in India only You are, of course, free
to spend the 15% leftover from the minimum spending requirement of 85% in any
way appropriate for your organisation. -Ed. FCRA: Foreign Contribution (Regulation) Act,
1976. Applicable in India only] 137: ICAI on NGOs(11-Jun-03) The Institute of Chartered Accountants of India has come out with a
‘Technical Guide on Accounting and Auditing in Not-for-Profit Organisations’. The 195-page guide focuses on applying the existing accounting and auditing standards to the not-for-profit organisations. It also provides illustrative formats for financial statements and audit report of not-for-profit organistations. [References: ‘Technical Guide on Accounting and Auditing in
Not-for-Profit Organisations’, 2003, Research
Committee of ICAI] 136: CRA for fund-raisers?(10-Jun-03) The Law Commission has suggested setting up a Contribution Regulatory Authority (CRA) to monitor fund-raising in India. The focus of the CRA appears to be fund-raising that follows a natural calamity, such as the Orissa cyclone or the Gujarat earthquake. The CRA will have a full time chairman. It will also have members from various disciplines, including five members from NGOs, media, legal or medical profession. According to the consultation paper, the fund-raisers will have to be registered with the district collector. They should also have at least three years’ experience in social service before they can get registration. [References: “Law panel moots new rules for
fund-raisers”, Times of India, New Delhi, 4-June-2003, P. 11] 135: No more aid…(9-Jun-03) The Government of India has decided not to accept any more bilateral aid from countries with ‘smaller’ packages. These countires will be encouraged to work directly with Indian NGOs instead of with the Government of India. This decision will not affect aid from larger donors such as USA, UK and Japan. [References: ‘External Aid’, Para 126, Finance
Minister’s speech, The Finance Bill, 2003] 134: Budget for 2003-04(4-Mar-03) For the last several years, the Government has been tinkering with
non-profit taxation. This year also, Dr. Kelkar’s
committee had made some important suggestions relating to NGO taxation. However, the budget this year has been quite different – in this respect at least. There has been no significant change in tax provisions affecting NGOs. Should we feel worried at this neglect of the NGO sector? Or perhaps feel relieved… [References: The Finance Bill, 2003. Applicable in
India. A new proviso is being inserted in
section 11(3A). This proviso would be relevant if an NGO was being dissolved.
– Ed.] 133: Dr. Kelkar’s Report – 80G Limit(26-Feb-03) The overall ceiling of 10% under 80G may also
go. Presently deductions under 80G (for donations to
NGOs etc.) are limited to 10% of income. Obviously, the Government believes
that people should be charitable, but not too charitable! The committee feels otherwise. It has suggested that people should be
allowed to donate as much as they want – even 100% of their income. So what happens when you donate 100% of your income to a charity?
Let’s say your income is Rs.2,00,000. You have
donated all of this to NGOs. Is it all over now? Unfortunately no. Deductible amount is 50% i.e. Rs.1,00,000.
Tax credit @ 20% of this comes to Rs.20,000. Tax on
Rs.2,00,000 comes to Rs.35,700. What is the
difference? Rs.15,700. And that is the additional amount
you have to pay to the Government as income tax! [References: Report of the Task Force on Direct
Taxes (Kelkar Committee; Dec-2002; http://finmin.nic.in/kelkar/direct_taxes_index.htm;
Extracts can be viewed at www.AccountAid.net] 132: Dr. Kelkar’s Report – 80G Deduction(26-Feb-03) Remember Dr. Kelkar’s consultation paper?
The Task Force released the final report on 27th December 2002. It
has suggested that deduction for donations under section 80G be allowed as a
tax-credit of 20% of the deductible amount. Sounds confusing? The report clears away the confusion by giving an example: Suppose you
donate Rs.1,000 to a charity. How much is the
deductible amount? 50% of this. That comes to Rs.500. How much will be the
tax credit? 20% of this. So it will come to Rs.100. How
is this different from the present scheme? Presently a person with high
income gets a higher tax benefit. Let’s say that your taxable income is 2,00,000. Your tax benefit will come to Rs.(1,000 x 50% x 30%), or Rs.150. However,
suppose your income is Rs.1,50,000. Your marginal
tax rate will be 20%. So your deduction will be lower at Rs.(1,000
x 50% x 20%), or Rs.100. Obviously the committee was concerned that the present tax treatment
is ‘inequitable’. So it has reduced the tax deduction to a more ‘equitable’
figure for all. How
we wish that the committee were willing to apply the same logic of equity to
the tax-rates also! [References: Report of the Task Force on Direct
Taxes (Kelkar Committee; Dec-2002; http://finmin.nic.in/kelkar/direct_taxes_index.htm;
Extracts can be viewed at www.AccountAid.net] |
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