India — New Direct Tax Code 2009 to Affect Charities

A new Direct Tax Code has been proposed by the government of India to overhaul the outdated and cumbersome tax system that has existed until now; a draft and a discussion paper were recently released by the Union Finance Minister, Mr. Pranab Mukherjee. Among other changes, the new Code will have an effect on charities, as outlined here.  The Code replaces the term “charitable purpose” with the term “permitted welfare activities.”  “Permitted welfare activities” has been defined to mean any activity involving relief of the poor, advancement of education, provision of medical relief, preservation of environment, preservation of monuments or places or objects of artistic or historic interest and the advancement of any other object of general public utility. The scope of Section 2 (15) of the Income Tax Act has been broadened. Prior to this amendment, “Charitable purpose” included: “relief of the poor, education, medical relief and the advancement of any other object of general public utility.”   Finance (No.2) Act 2009 has now added: “preservation of the environment (including watersheds, forests and wildlife) and preservation of monuments or places or objects of artistic or historic interest”.

Advancement of any other object of general public utility will not include any activity in the nature of trade, commerce or business, or any activity of rendering any service in relation to any trade, commerce or business, for a fee or for any other consideration, irrespective of the nature of use, application or retention of the income from such activity.

The finance ministry has uploaded on its website (www.finmin.nic.in) the draft Direct Tax Code, a discussion paper, a comment on the code, and a place for people to respond to it.

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