Budget 2021 announces two amendments with respect to taxation for charitable organisations

Advocacy & Government: The Finance Minister has disallowed the carry forward of losses by charitable organisations. However, loan repayments and replenishment of corpus shall be allowed as application.

Charitable entities are not allowed to accumulate more than 15 percent of their annual income other than that for corpus donations. It was noticed that entities claim corpus donations as exempt from tax which is permissible. However, at the same time, they would claim the application of the corpus as part of the mandatory 85 percent application from income other than such corpus. This results in a situation where the corpus income has been exempted and its application has also been claimed against the mandatory 85 percent application of non-corpus income.

The second change is with respect to tax exemption status of smaller charitable trusts. Universities, educational institutions, and hospitals that were registered as trusts and had annual incomes of less than INR 1 crore used to get a blanket tax exemption in order to ease their financial burden. This limit has now been increased to INR 5 crore.

These amendments will take effect from 1st April, 2021 and will accordingly apply to the Assessment Year 2022-23 and subsequent assessment years.

Fundraising & Communications: The Ministry of Home Affairs (MHA) has issued a circular extending the validity of FCRA registration certificates to September 30th, 2021. This applies to all FCRA licences that have expired or will expire between September 29th, 2020 and May 31st, 2021. The decision to extend the deadline has been driven by the exigencies arising from the COVID-19 situation.

FCRA refers to the Foreign Contribution (Regulation) Act 2010, which permits charitable organisations based in India to raise funds from foreign sources.

The order also clarified that nonprofits that have already opened an account and have the requisite permission to receive foreign aid, can henceforth receive it only in these newly-opened accounts.

The FCRA law was amended in September 2020 to include a clause that mandated that all nonprofits receiving foreign aid must necessarily open an account in State Bank of India’s New Delhi Main Branch. The government had initially set the deadline for this account opening as March 31st, 2021; it later extended it to June 30th, 2021 after several nonprofits argued in court that there had been delays because necessary approvals from MHA had not been received.

Several organisations have not been able to receive foreign funds during the crisis caused by the second wave, and this has impacted their COVID-19 relief efforts. Relaxing the foreign funding rules could significantly help organisations ramp up their operations to help individuals, supply critical healthcare equipment, and respond to communities in rural areas.

Read this article to know how amending the FCRA can have unforeseen implications.

Philanthropy & CSR: The Ministry of Corporate Affairs (MCA) has issued a circular that allows corporate spending on health infrastructure for COVID-19 care to qualify as corporate social responsibility (CSR) expenditure.

This includes setting up medical oxygen generation and storage plants, manufacturing and supply of oxygen concentrators, ventilators, cylinders, and other medical equipment to counter COVID-19.  

The announcement comes at a time when all efforts are being directed towards expediting efforts to support the country’s healthcare infrastructure.

According to the circular, companies can now undertake projects and activities in collaboration with other companies using CSR funds. Additionally, they can contribute to specified research and development projects, as well as publicly funded universities and certain organisations that conduct research in science, technology, engineering, and medicine.

The government had earlier clarified that setting up makeshift hospitals and temporary COVID-19 care facilities would also be considered a CSR activity. Rajesh Verma, the Corporate Affairs Secretary, has requested businesses to consider converting vacant office buildings into COVID-19 facilities to cater to the rapidly increasing caseload.

Read this article to understand why media attention on COVID-19 deaths due to lack of oxygen in big cities has skewed donor priorities.