Religious trusts lose out in the new tax bill

Religious and charitable trusts across communities are agitating against changes in the Direct Tax Code Bill of 2010 which they claim will subject them to a punishing tax regime.

The bill is now with the Department Related Standing Committee on Finance led by Yashwant Sinha and is yet to be passed.

It is supposed to come into effect from April 2012. The new rules, if implemented, will affect lakhs of trusts in the country, including around 5,50,000 in Maharashtra.

The agitating trusts have formed a group called the Federation of Charitable and Religious Trusts to demand changes in the proposed tax code. According to the group which represents Hindu, Christian, Jain, Parsi and Muslim trusts, the draft of the new bill will create ambiguities in the definition of religious trusts and take away tax exemptions.

Senior advocate Homi Ranina said that while a new section introduced in the code defines ‘No Profit Organisation’ (NPO) and says that such groups are exempt from income tax, trusts working exclusively for a particular religious community will not be treated as NPOs and will have to pay 30% of their income as tax.

Apart from these, the trusts will have to pay an annual wealth tax of 1% on the total value of their property. This means the trusts will have to get their properties valued every year and pay a tax on the value. Many of these trusts have land assets that are valued at several crores of rupees. This means that they will have to pay a substantial amount as wealth tax though their current incomes are meagre.

“The government had called for objections to the bill and we have given our submissions. We want the government to make amendments in the bill,” said Viren Merchant, convenor of the federation and trustee, Shree Bhatia Wadi Trust.

Also the Direct Tax Code of 1922 gave charities working for the welfare of a particular community several tax exemptions. The latest tax code proposes to take away the exemptions.

The federation also said that unlike earlier tax codes that have been drafted by law commissions, the latest code has been put together by revenue officials who want tax exemptions for religious charities to go. Members of the federation met Sinha last week and submitted a memorandum about their objections to the bill.

They also met the chairman of the Central Board of Direct Taxes to voice their objections.