Trusts, NGOs brought under I-T radar

Ahead of the proposed implementation of the Direct Taxes Code next year, the income tax department has decided to bring on its radar the commercial activities of tax-exempt entities which include educational institutions, trusts and NGOs.

A senior department official told Business Standard that a committee had been set up under the DG (exemption) to suggest measures for identification, investigation and detection of tax evasion in the areas which come under the tax-exempt category.

"Under DTC, these areas in any case are likely to come under the tax net in some form or the other. The idea is to prepare a road map and create a mechanism to handle this exercise effectively," he added.

The official said the idea was to plug revenue leakages by segregating commercial activities from charitable work. "Though the work on this is going on already in the department, the committee will suggest a comprehensive plan. The whole exercise is part of the department's action plan 2011-2015," he said.

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"Under the present tax laws, the charitable institutions enjoy complete tax exemption. Under DTC, it is proposed to bring them under the tax net, subject to certain conditions and exceptions," said KPMG ED Vikas Vasal.

Vasal added if these entities had surplus income, it might be taxed under DTC at the rate of 15 per cent.

The Central Board of Direct Taxes Vision 2020 document has also envisaged developing a mechanism for monitoring tax-exempt sectors.

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"The size and diversity of the tax-exempt sector makes it incumbent for the department to focus on compliance in this sector and also provide necessary guidance for ensuring compliance," the vision document has stressed.

The department wants enhanced monitoring of the activities of entities belonging to the tax-exempt sectors to ensure the tax forgone is well deserved.

The action points outlined in the vision document include developing a national data base of such entities and listing their activities. The department is also planning to extend adequate facilities for timely registration of these entities. The focus of this initiative is on development of an effective mechanism for proactively addressing misuse of tax-exempt status.