AccountAid Capsules 2007 (227...)

The Institute of Chartered Accountant of India is inviting participants for the ICAI Awards for Excellence in Financial Reporting for the year 2008-09. This award is presented among seven categories of organizations. NGOs, Educational Institutions, Charitable Hospitals and Section 25 Companies can file their nominations under category VII.

Last date for receipt of entries is 15th October, 2009. No fee is to be paid for entry. At present very few NGOs are filing their nominations, so there are good chances that your organization may get the first or the second award.

The entry form and conditions for entry are given on the ICAI website www.icai.org/resource_file/16823icai_awards_efr.pdf. The completed forms, along with the relevant enclosures, need to be sent at the following address:

The Secretary, Research Committee,

The Institute of Chartered Accountants of India,

ICAI Bhawan, Post Box No.7100,

Indraprastha Marg, New Delhi – 110 002. E-mail: research@icai.org

References:

· ICAI website http://www.icai.org/resource_file/16823icai_awards_efr.pdf.

292: No more 100% deduction for Donations?

(20-Aug-09)

Another scalp claimed by the Code is 100% deductibility of donations under section 35AC (80GGA). If the Code becomes applicable from 1^st April 2010, donors will no longer be able to claim 100% deduction (from income) of donations made to approved NGOs.

On the other hand, every NPO will automatically be approved for 50% deductibility of donations. Deductible donations will continue to be restricted to 10% of Gross Total Income.

Sources:

· Section 72, read with Sch. 16. Direct Taxes Code Bill 2009. Applicable in India

291: Taxing Times Ahead for NGOs?

(19-Aug-09)

Government of India has drafted a new Tax Code. If passed, this may become effective from FY 2010-11.

The code proposes several changes to the way NGOs are taxed. The most important is loss of financial sustainability.

NGOs will no longer be able to accumulate funds for sustaining programs. If any unspent funds remain at the end of the year, they will have to pay 15% tax on these.

All NGOs will need to account on cash basis. They will not be able to claim provisions for expenses / grants not paid out before the end of the year.

Sources:

· Chapter IV. Direct Taxes Code Bill 2009. Applicable in India

290: Some FC information for 2007-08...

(29-Jul-09)

In 2006-07, a total of 1659 NGOs received over a crore Rupees. In 2007-08, this number has nudged up slightly to 1695.

Sources:

· Written reply by Minister of State in the Ministry of Home Affairs, Shri Mullappally Ramachandran on 29-Jul-09 to a question in Rajya Sabha

· AccountAid Capsules 273, Dec’08

289: Taxing Shock Coming up...

(25-Jul-09)

If your accounts show any business-like income in 2008-09, you may be in for a shock. Of a taxing kind.

It appears that the Income Tax officials are going to carefully scrutinise the returns to find out whether any modern NGO has been earning business-like income. This could include sale of cards or souvenirs, consultancy fees, hire charges, etc.

And if they find a trace of such income, they will try to see whether the NGO has become ‘uncharitable’ due to changes in sec. 2(15). If this does happen, then the NGO will be assessed as a business. Its income will be recalculated based on business accounting. And any ‘profit’ that emerges, will be taxed.

If you have earned any ‘business’ revenue in 2008-09, please consult your tax advisers (or auditors) before you file your tax return. Grant makers should also warn their partners. Or be prepared to see their grant-funds being used to pay income tax!

Sources:

· AccountAid Capsules 262, 285

· Section 2(15) of the Income Tax Act, 1961. Applicable only in India.

· ‘I-T department vets previous returns for commercial activity’ , 24-Jul-09, LiveMint; http://www.livemint.com/2009/07/24225704/IT-department-vets-previous-r.html?h=B

288: Uncharitable Education?

(23-Jul-09)

Private schools in UK have long enjoyed tax exemption, as education is considered a charitable object. In 2006, this was changed. The schools were required to show they provide a public benefit. In a recent review by the Charities Commission, two out of five private schools failed the test. They now have one year to make up. Or start paying taxes.

Indian law normally catches up with UK law sooner or later. Already there have been loud murmurs about how many schools are being run for profit, instead of education. The UK law may, therefore, be an advance warning for public schools in India.

Sources:

· ‘Private schools as charities: The axeman cometh’, The Economist, July 18^th – 24^th 2009; http://www.economist.com/world/britain/displaystory.cfm?story_id=14062337

287: Long Lived 80G

(7-Jul-09)

Section 80G approvals for fund-raising have a limited life. You need to renew them every five years. This means trooping down to an encounter with your ITO every fifth year.

The Finance Minister wants to save you this trip. Approvals under section 80G will now be in perpetuity. That means these will remain valid throughout your life. Unless, the Tax Commissioner decides to withdraw it in your specific case.

Would the Honorable Finance Minister kindly consider moving to Home Ministry after this, and making the same change to FCRA Bill 2006?

Sources:

· Clause 33 of Finance Bill 2009. Proposed amendment to section 80G(5). Effective from 1^st October 2009.

286: BandAid for Donors ‘orphaned’ by 2(15)

(7-Jul-09)

When sec. 2(15) was amended, many NGOs became ‘uncharitable’ under law from 1^st April 2008. As a result, they automatically lost their 80G approvals. However, donors continued to give them money without knowing this.

The budget proposes giving such donors some relief. They can claim a tax benefit under section 80G for their good deed. But only for the year 2008-09!

Sources:

· Capsule 263: Charitable Purpose – For Whom the Bell Tolls…. Dated 9-Arpil-2008

· Clause 33 of Finance Bill 2009. Proposed amendment to section 80G(5). Effective for last Financial Year 2008-09 only.

285: Some Relaxation of Section 2(15)

(7-Jul-09)

Beginning 1^st April 2008, a modern NGO getting fees etc. could lose its tax exemption, as well as approval under section 80G. This also affected NGOs involved in raising funds for wild-life by selling greeting cards etc.

The budget proposes a relaxation for two categories of NGOs:

· Involved in preservation of environment (including watersheds, forests and wildlife); or

· Engaged in preservation of monuments or places or objects of artistic or historic interest.

‘Charitable purpose’ will now have six limbs. The first five (relief of poor, education, medical relief, environment, monuments etc.) will remain charitable even if the NGO has any business-like income. The residual category (‘advancement of any other object of general public utility’) will become uncharitable the moment they sell anything or earn any fees.

Sources:

· Capsule 262: No trading for Charities – Budget 2008; dated 3^rd March 2008

· Clause 3 of Finance Bill 2009. Proposed amendment to section 2(15). Effective from last Financial Year 2008-09.

· AccountAble 141 and 142. Available at www.AccountAid.net

284: ‘Gupt Daan’ made easier

(7-Jul-09)

In 2006, all anonymous donations to charitable organisations became taxable @ 30%. This included even coin-box collections of 2-5 rupees. Many NGOs withdrew their collection boxes in frustration.

The new Budget proposes an exemption of Rs.1,00,000 or 5% of total income, whichever is higher. This means that an NGO with a total income of 1 crore can report anonymous donations of Rs.5 lakhs, without any bother of tax.

A smaller NGO with income of just Rs.5 lakhs can also report anonymous donations of Rs.1 lakh, without any tax.

So go ahead, and tap that shy donor – without any tax implication!

Sources:

· Capsule 196 dated 22-Mar-06: Anonymous Donations

· Clause 42 of Finance Bill 2009. Proposed amendment to section 115BBC. Effective from current Financial Year 2009-10.

283: Crediting FC to NGOs on prohibited list

(6-Jul-09)

Another issue that the RBI is concerned about is that NGOs / other organisations put on prohibited lists by MHA, have continued to receive foreign contribution. This has happened due to laxity on part of the banks.

RBI has advised careful scrutiny of the MHA lists of frozen FCRA registrations before crediting funds to bank accounts of NGOs or other organisations.

Sources:

· Capsule 277 dated 13-May-09: FCRA Amnesty Scheme till 9th August 2009

· Para 2.6. Master Circular – Foreign Contribution (Regulation) Act, 1976 – Obligations of Banks in Regulating Receipt of Foreign Contribution by association / Organizations in India. Ref. No. DBOD. AML. BC.No.1/14.08.001 / 2009-10 dated July 01, 2009 (http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=5131&Mode=0)

282: Multiple accounts for FCRA funds

(6-Jul-09)

All NGOs receive foreign contribution in the designated bank account. However, later some NGOs move these to other bank accounts, for operational or accounting convenience. This is actually violation of FCRA rules. You need to get FCRA permission to keep FCRA funds in secondary bank accounts for operational purposes.

RBI has now identified this as a common irregularity:

“Certain associations were found to be operating more than one account, either in the same branch or in different branches (other than the account specified in the communication for registration), for carrying on transactions of foreign contributions.”

It has advised the banks to scrupulously follow the FCRA rules in this regard.

Sources:

· Para 2.6 of Master Circular – Foreign Contribution (Regulation) Act, 1976 – Obligations of Banks in Regulating Receipt of Foreign Contribution by association / Organizations in India. Ref. No. DBOD. AML. BC.No.1/14.08.001 / 2009-10 dated July 01, 2009 (http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=5131&Mode=0)

281: Refusing redeposits in FC account

(3-Jul-09)

Often NGOs complain that some banks refuse deposit of local cheques into the FCRA account. This is because these banks mistakenly think that foreign contribution must come from outside India. Mostly the problem is solved If you give a letter saying the funds are FCRA funds, which have been received from a foreign source in India, or are a redeposit of FCRA funds.

RBI has now clearly said that even donations received in Indian currency from a foreign source should be deposited to FC account:

“Therefore, banks should not ordinarily refuse to credit the legitimate proceeds of any 'foreign contribution' to the designated bank account of an association, which has either obtained prior permission or registration under FCRA from the Ministry of Home Affairs.”

The FC funds given by the first recipient to a second or subsequent recipient would also have to be deposited in FC account. It does not matter that these are in local currency. Similarly, interest earned on any investments made out of FC funds are also treated as foreign contribution and should be credited to FC account.

Sources:

· Pra 2.3. Master Circular – Foreign Contribution (Regulation) Act, 1976 – Obligations of Banks in Regulating Receipt of Foreign Contribution by association / Organizations in India. Ref. No. DBOD. AML. BC.No.1/14.08.001 / 2009-10 dated July 01, 2009 (http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=5131&Mode=0)

280: Half Yearly Reports by Banks to FCRA

(3-Jul-09)

Did you know your bank reports all receipts in your FC designated bank account to the MHA? This is done through six monthly reports. The report gives details of your organization, registration number, date and amount credited to the account. The name of the donor agency is also mentioned where available.

Sources:

· Paras 2.5, 4. Annexure Master Circular – Foreign Contribution (Regulation) Act, 1976 – Obligations of Banks in Regulating Receipt of Foreign Contribution by association / Organizations in India. Ref. No. DBOD. AML. BC.No.1/14.08.001 / 2009-10 dated July 01, 2009 (http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=5131&Mode=0)

279: Your Banker is Watching you...

(2-Jul-09)

Did you know that your bank manger keeps a special watch on your bank account, if you are an NGO? This happens whether or not you are registered under FCRA.

Why does this happen? Well, RBI has instructed all banks to report any suspicious transactions to Ministry of Home Affairs. This is to prevent any violation of FCRA provisions. An example would be receipt of foreign remittances in a non-FCRA account. Similarly, transfer of funds from an FCRA account to a non-FCRA account may be reported to the MHA.

Sources:

• Para 2.1. Master Circular – Foreign Contribution (Regulation) Act, 1976 – Obligations of Banks in Regulating Receipt of Foreign Contribution by association / Organizations in India. Ref. No. DBOD. AML. BC.No.1/14.08.001 / 2009-10 dated July 01, 2009 (http://www.rbi.org.in/scripts/NotificationUser.aspx?Id=5131&Mode=0)

278: OFAC Sanctions and Charity Funds

(13-May-09)

The Office of Foreign Assets Control (OFAC) in US maintains a list of SDNs (Specially Designated Nationals) on its web-site. The list presently runs into 420 closely-typed pages. It contains names of thousands of individuals, companies and charities who are believed to be supporting terrorism or narcotics trafficking, or belong to some specified countries. Some countries (Burma, Cuba, Iran and Sudan) are also under full sanction.

According to the US law, any funds related to these persons / countries should be seized, if these pass through a US bank anywhere in the world. US banks have to scrutinize all transactions and check whether there is any connection with the SDN list. If yes, the funds are liable to be frozen.

The list also contains a large number of charitable organizations. This is based on the current international view that charities can be used to move funds related to terrorism or contraband.

Sources:

• Latest list of SDNs and blocked persons available at http://treas.gov/offices/enforcement/ofac/sdn/t11sdn.pdf

• A Study on Money Laundering: An Accountant’s Perspective. ICAI, Jan-2005

277: FCRA Amnesty Scheme till 9^th August 2009

(13-May-09)

Some registered NGOs and others were placed on prior-permission list in Nov’05 as they had not filed their FC-3 for three years (2001-02, 2002-03, 2003-04). This effectively meant that their FCRA registration had been cancelled.

Later, some of these NGOs were taken off the prior-permission list when they filed their pending accounts by 31^th Dec 2006.

Now the FCRA Department has announced another amnesty scheme for those still remaining on the prior-permission list of Nov’05. These NGOs can now file their pending returns for seven years (2001-02 to 2007-08). If they did not receive any funds in a particular year, they should file a NIL return. This should be done before 9^th August 2009.

The FCRA Department will then review the documents filed, and restore the FCRA registration in due course, by publishing another notification.

References:

· MHA notification SO 427(E), dated 10-Feb-09 [No. II/21022/52(25)/2005-FCRA(MU)], published in The Gazette of India (Extraordinary) Part II-Section 3, Sub-section (ii), No. 255 dated 10-Feb-2009; available at www.accountaid.net

· For guidance on how to fill and file the form FC-3 correctly, please see AccountAble issues on FCRA at http://uttardayee.freewebspace.com/Accountaid_web/AccountAble_Topical.htm

276: Generous Grenada

(31-Mar-09)

Who gives more of its money to India – USA or Grenada? If you said USA, you may not be quite right.

In 2006-07, USA gave Rs.30 arab ($743 million ) to India. This was 24% of the total FCRA inflow. However, it was just 0.005% of USA’s GDP.

Compare this with Grenada, a small island nation in Caribbean Ocean. In the same year, it remitted Rs. 3.33 arab (US $ 83 million) to India. That is nearly 13% of its GDP!

Surely, when it comes to generosity, Grenadians must be miles ahead of the Americans!!

[References:

· Ministry of Home Affairs (India), FCRA Department Annual Report for 2006-07, titled ‘Receipt and Utilization of Foreign Contribution by Voluntary Associations’, available at http://mha.nic.in/fcra.htm

· USA’s GDP for 2007 was Rs.57 neel (US $ 14 Trillion). Source: https://www.cia.gov/library/publications/the-world-factbook/geos/us.html. If you want to find out what a ‘neel’ is, please read AccountAble 121 at www.Accountaid.net!

· Grenada’s GDP for 2007 was Rs. 25 arab (US $633 million). Source: https://www.cia.gov/library/publications/the-world-factbook/geos/gj.html

275: ‘One Person Company’ for Charity

(30-Mar-09)

The Companies Bill, 2008 proposes a new type of company called OPC, which can be formed by just one person. This company can also obtain the license for charitable companies.

Hopefully, now the much maligned ‘one-man show’ in NGOs will have some legitimacy!

[References:

· Section 2(1)(zzk), Section 3(1)(c), Section 4 of The Companies Bill 2008

· With due apologies for using the phrase ‘one-man show’. The Bill uses the correct phrase ‘One Person Company’ instead. – Ed.]

AccountAid Capsules were launched in 2001. These are small, mild and hopefully without side effects. Unlike other medicines, you can pass these on to your friends, without a doctor's prescription. Reactions (particularly allergic ones) are most welcome.

Prescribe: To get on to the list, send a blank e-mail to ‘accountaid-subscribe@topica.com’

See also:

AccountAid Capsules –

To register for AccountAble, click on: