If the Central Board of Direct Taxes has its way, charitable organisations may no longer be able to enjoy their tax-free status.
There are proposals to tax donations to some institutions and doing away with tax exemption on profits of institutions if the money is not unutilised in the year of earning the profit.
The department is of the view that a concessional tax could be imposed on part of the profit of charitable bodies, official sources said.
It has been also been recommended that if a charitable body -- be it a hospital, an educational body or any other organisation -- asks for a tax exemption on its profits, it should be mandatory for the body to use a part of it for the weaker section of the society.
According to sources, it has been observed that many charitable trusts incur hardly any expenditure on charitable purpose even though the exemption is granted in the plea of charity.
The changes have to be brought in through amendment to the Income Tax Act.
Under the existing law, Section 11(4A) of the I-T Act states that profit of the business of charitable bodies will not get tax exemption unless the business is incidental to the attainment of the objective of the trust.
Activities enlisted for charity include education, relief of poor, medical facilities and business of general public utility.
The tax exemption on the profit is valid for five years if it is not spent on the year of earning for some specific purpose. The profits are taxed from the sixth year.
Earlier, the government had included a clause stating that charitable institutions asking for tax exemption should not be engaged in any activity of profit under Section 2(15) of IT Act.
However, later it was removed as the charitable organisations are expected to generate their own resources and not depend solely on donations and charity.
A source pointed out that the very purpose of charity for which exemption is asked for is hardly being served even though the profits are ploughed back into the same business and not taken out by the trust.
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