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Negative approach: Discouraging charitable services!
21 November, 2012 Ahmedabad :
Negative approach: Discouraging charitable services!

Diwali festive is synonymous with worship of Laxmi, the Goddess of wealth. It is believed that Laxmi does not stay for long at one place, it keeps changing places. The word currency is also derived from the term current and literary means that the money needs to flow, from one hand to other. According to Hindu Vedas and scriptures, Laxmi has three stages – “Bhog, Daan and Naash”. Meaning thereby money and wealth have either to be used for self consumption and enjoyment (bhog) or charity (daan); otherwise it gets destroyed (naash). The concept of charity prevails in all religions. The Muslims call it zakat, which is one of the pillars of Islam and is discussed in both the Qur'an and the hadith literature. Giving of the zakat is considered a means of purifying one's wealth and one's soul. Christian believes that charity is an unlimited loving-kindness to all others and should form a part of one’s life. Charity is done by charitable organizations as well as individuals.

In a country like ours, charity plays a vital role as poor people of our country are not self reliant, even for their basic needs like food, shelter, clothing, medical aid and education and they are dependent on various generous donors. Many public charitable trusts help people across nation irrespective of caste and creed. Now, Service Tax based on negative list. However activities of charitable trusts are not covered under negative list. Charitable organizations are exempted vide sr. no. 4 of mega exemption Notification No. 25/2012-ST dated 20.06.2012. Accordingly services by an entity registered under section 12AA of the Income tax Act, 1961 by way of charitable activities is exempted from Service Tax. But there are many riders and restrictions. The Notification No. 25/2012-ST dated 20.06.2012 has defined “charitable activities” and has limited its scope. Any charitable activity of service, which is outside the parenthesis of this definition, is taxable. Accordingly, in order to avail the service tax exemption the activity should confirm with one of the following activities. (1) public health by way of - (a) care or counseling of (i) terminally ill persons or persons with severe physical or mental disability, (ii) persons afflicted with HIV or AIDS, or (iii) persons addicted to a dependence-forming substance such as narcotics drugs or alcohol; or (b) public awareness of preventive health, family planning or prevention of HIV infection. (2) advancement of religion or spirituality; (3) advancement of educational programmes or skill development relating to,- (a) abandoned, orphaned or homeless children; (b) physically or mentally abused and traumatized persons; (c) prisoners; or (d) persons over the age of 65 years residing in a rural area; (4) preservation of environment including watershed, forests and wildlife; or (5) advancement of any other object of general public utility up to a value of,- (a) eighteen lakh and seventy five thousand rupees for the year 2012-13 subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during 2011-12; (b) twenty five lakh rupees in any other financial year subject to the condition that total value of such activities had not exceeded twenty five lakhs rupees during the preceding financial year;

Thus if a NGO is giving education services to poor children who are not homeless but their parents are economically backward and cannot afford their education, the said activity will be taxed. Charitable services in relation to public awareness about Life style diseases may attract service tax. The above restrictive definition of charitable activity implies that in case, where its activity is covered explicitly in any of the specified charitable activities as prescribed above in point (1) to (4) it is exempt from service tax without any value limit. For charitable activities mentioned at ‘(5)’, it is exempt up to a value of twenty five lakh rupees in a financial year if the total value of such services had not exceeded twenty five lakh rupees during the preceding financial year. However, this later exemption is available only if the activities are meant for general public. General public is defined in the notification as ‘body of people at large sufficiently defined by some common quality of public or impersonal nature’. Further it is also clarified by the Guidance Note released by the ministry, that donations to a charitable organization are treated as consideration if charity is obligated to provide something in return e.g. display or advertise the name of the donor in a specified manner or such that it gives a desired advantage to the donor.

Instead of encouraging charitable services, such taxes have a negative effect on the mindset of positive people who are engaged in such charitable services. Negative approach of taxing such services results into discouraging charitable services! Government seems to have neither Conscious feeling and sympathy of the poor and needy, nor respect of Donors!

Courtesy: From the desk of Monish Bhalla, Founder, www.servicetaxonline.com
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