Published On:04 July 2011
Posted by Indian Muslim Observer

Muslim trusts are under scanner in Gujarat

By Abdul Hafiz Lakhani

Ahmedabad: Representatives of different religious and charitable trusts are up in arm against the provisions of the Direct Taxes Code Bill which proposes Income Tax and Wealth Tax on these trusts. Federation of religious and charitable trusts has launched a movement to mobilize public support against the tax proposal.Most of the Muslim trusts are the worst sufferers

Talking to newsmen here, representatives of various trusts said that this would affect public welfare activities of different trusts which are basically set up for the benefit of particular casts or communities. They are of the view that these trusts, in a way, were doing the basic services like health and education which were constitutionally the responsibilities of the government.

Besides, they, say that the provision to tax trusts was against the objectives of the DTC which were to promote activities of these trusts and to keep them away from the tax regime. They clarified that existing laws were enough to check illegal activities of trusts if that was any logic for brining trusts in tax net.

Income and wealth of Religious Trusts established for a particular caste or religious community enjoy income-tax and wealth-tax exemption under the present Income Tax Act, 1961 and wealth-tax Act, 1957.

The Direct Taxes Code Bill, 2010 (DTC) has granted 100% exemption to any Non-profit organisation (NPO) being Religious Trusts or Institutions from the levy of income tax providing exemption under clause 39 of the Seventh Schedule to the DTC.

However, the definition of NPO in clause 314 (169) of the DTC expressly excludes Trusts/Institutions which are established for a particular caste or religious community or which are established for providing benefit to the members of a particular caste or religious community. Thus, all religious trusts and institutions established for a particular caste or religious community (Muslims) will not be considered as NPOs and thus become liable to income-tax and wealth-tax.

The status of partly religious and partly charitable trust is also not clear under the DTC. Tax experts state that the authorities have goofed up in drafting the said provisions. If the above mistake is not corrected, religious trusts / institutions will have to bear the full brunt of taxation.
Charitable Trusts are doing exemplary work in urban and rural India by conducting diverse charitable activities and providing aid to the poor and the needy.

However, the Government proposes to take away various benevolent provisions under the present Income Tax Act and wants to tax Charitable Trusts @15% on the surplus generated by them, under the draft Direct Taxes Code Bill (DTC).

Further, charitable trusts for particular religious communities set up prior to 1st April, 1962 which are currently enjoying complete tax exemption will become liable to pay income-tax at the flat rate of 30% and wealth-tax at the rate of 1% when the DTC comes into force.

The draft DTC does not incorporate the existing provision of accumulation of 100% of income for 5 years as provided under section 11(1B)(2) of the I. T. Act, 1961.

This provision facilitates Charitable Trusts to accumulate funds for capital expenditure to be undertaken in future. The DTC has also discontinued the existing provisions of Income Tax Act, 1961 where accumulation up to 15% of gross income is allowed without any time-limit.

Under the present I.T. law repayment of loan, depreciation and payment of Income Tax are allowed as application of income. However, these provisions are missing under the DTC. Similarly, under the present law deficit is allowed to be carried forward and set-off in future. However, the treatment of deficit is unclear under the DTC.

Presently, capital gains of NPOs is exempt if the same is invested in any capital asset including a fixed deposit as provided under section 11(1A) of the Income Tax Act, 1961. However, the DTC doesn’t have similar provisions.

[Abdul Hafiz Lakhani is a senior Journalist based at Ahmedabad, Gujarat. He is associated with IndianMuslimObserver.com as Bureau Chief (Gujarat). He can be reached at lakhani63@yahoo.com or on his cell 09228746770]

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Posted by Indian Muslim Observer on July 04, 2011. Filed under , , , . You can follow any responses to this entry through the RSS 2.0. Feel free to leave a response

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