On February 1, when Finance Minister Nirmala Sitharaman introduced the Budget in Parliament, she presented a number of amendments under the Finance Bill 2020. Some of these alter the validity of registrations granted to Indian non-governmental organisations.
The Bill, which will come into effect on June 1, amends certain sections under the Income Tax Act and makes the registrations of such organisations valid only for five years. After this, they have to apply again.
In addition, the Bill states that all non-profit organisations in the country will have to apply for fresh registrations under the Act by August 31.
From tweaking the rules for them to receive funds to cancelling the licences of thousands of NGOs under the Foreign Contribution Regulation Act, 2010, the Narendra Modi-led Central government has taken an iron fisted approach towards the sector.
Experts say the current amendments are “draconian” and warned that they could be misused.
“Besides posing a huge administrative burden, these amendments can be used as a tool to harass groups critical of government views and actions,” said Avinash Kumar, executive director of Amnesty International India. “Most importantly, they can be used to further the government’s crackdown on right to dissent.”
What the amendments propose
Prior to the amendments, there were two ways through which non-profit organisations could register under the Income Tax Act to get an exemption from taxes, said a chartered accountant who did not want to be identified.
Organisations could register under Section 12AA to get the benefit of receiving a tax-free income, he said. Once NGOs registered under Section 12AA, their donors would become eligible for tax benefits under Section 80G, which exempts donations made to a registered non-profit organisation.
Another provision, Section 10 (23C), granted an automatic registration to those NGOs that worked specifically in health and education. “These organisations did not have to register themselves under this section as long as their annual receipts were under Rs 1 crore,” said the chartered accountant. NGOs would have to register under the section if their annual receipts crossed the Rs 1 crore mark, he said.
Previously, registrations under all three sections were granted to organisations on a permanent basis.
But this is about to change. The amendments in the Finance Bill 2020 that were presented during the Budget Session propose to grant registrations valid up to five years after which organisations will have to reapply.
Along with this, the Bill proposes to replace 12AA with 12AB, which states that organisations will have to renew their registrations every five years.
Moreover, the Bill notes that non-profit organisations applying for exemptions for the first time will get a provisional registration for three years after which they will have to apply again for a registration that will be valid for five years.
For organisations that have remained registered under the Act, the Bill states that they too will have to apply again to be freshly registered under the Act for five years. The amendments come into effect from June 1 and the last date for organisation to reapply is August 31.
The amendments state that the commissioner will accept the registration of the organisation after it submits relevant documents and information that satisfies them of the “genuineness of activities of the trust or institution”.
The amendments also include making it mandatory for organisations to disclose their donor lists and giving donors a certificate. “The point is that returns from the organisation and donor should match for that year,” the chartered accountant said.
‘Possibility of misuse’
The amendments could make it harder for non-profit organisations to function in India, activists said.
“These laws are far from friendly,” said Noshir Dadrawala, chief executive of Centre for Advancement of Philanthropy. “Year after year, these amendments are creating a very disabling and discouraging legal regime for NGOs to function.”
Others said that the government’s move was a “welcome step” in an attempt to create transparency but raised concerns about the process of reapplying for registrations.
Several NGOs chose to let their registration applications remain pending “because there was no way of getting one [registration] without yielding to corruption at various levels”, said Pushpa Aman Singh, the founder of Guide Star India, a repository of information on NGOs in India.
Singh said that instead of making NGOs apply for fresh licences every five years, the government should automatically renew registered organisations that filed their income tax returns regularly.
“The tax returns are getting more and more detailed and collect sufficient details to determine if the objectives and activities continue to remain charitable or not,” she said. “Renewal of all entities will only burden the system and cause delays and not achieve the desired purpose.”
Warning that the new process could create “unnecessary administrative burden”, Kumar said that the Finance Ministry should have published the data of exemptions claimed by taxpayers under Section 80G and also how precisely this exemption was wrongfully availed of.
“Lots of the time, money and energy of the NGOs would be wasted in the renewal process and would make them less effective in achieving their objective, leading to a downward spiral,” he said.
In addition, the government’s amendments could make it challenging for NGOs to raise funds, Singh said. This could discourage donors from donating with the government providing taxpayers the option to migrate to a system with no exemptions, she said.
“This is sad as non-profits will have to work harder at reaching out to more donors and increase their marketing spend,” Singh said.
Raising funds has been a concern for NGOs after 18,000 NGOs were barred from receiving funds by the government under the Foreign Contribution Regulation Act, 2010 for allegedly violating rules in the last five years.
Kumar said that the “possibility of misuse” of the amendments by the government could not be ruled out. “There are high chances that the renewal process would create a lot of unintended hardship to the sector as a whole, without any apparent benefit to the people of India,” he said.
Dadrawala said that the amendments went beyond government regulation to instituting a “control mode” over NGOs. The objective of the amendments, he said, appeared to be to “intimidate” and “break the back of the sector under draconian compliance.”
“There is more ease of doing business than ease of doing charity or philanthropy,” he said.