International Tax Panorama

How the proposed Budget adversely affects Indian charitable trusts, including Tata Trusts and top corporate donors?

Basically the new tax law proposed in the Budget, reduces tax breaks for the donor organisations.

The Finance Bill proposes that if a charitable organisation donates to another charity, then only 85 per cent of the donation will be considered as application of income for the donor organisation.

The aim is to discourage the formation of multiple trusts, in order to save taxes. They tend to accumulate 15 % at each stage, resulting in reduced effective application towards the charitable or religious activities to a lesser percentage compared to the mandatory requirement of 85 per cent.

Trust officials say this is a major setback for the donor organisations, including corporate foundations and intermediary organisations, which work with various  implementing agencies at the grassroots level.

The proposed amendments would discourage charitable foundation and philanthropic institutions to provide the last mile services to the citizens.

Trusts are planning to appeal to the Indian government to repeal the proposed amendment or modify it in such a way that it should not impact their work at the grassroots level.