The Hindu Business Line : Compulsory auditing for charitable educational bodies, hospitals likely — Taxation laws amendment Bill introduced in LS

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Compulsory auditing for charitable educational bodies, hospitals likely — Taxation laws amendment Bill introduced in LS

Our Bureau

New Delhi , May 12

THE Government proposes to tighten control over educational institutions and hospitals that are currently availing various income-tax exemptions for their charitable activities.

Educational and medical institutions operating as not-for-profit entities and with a total income of Rs 1 lakh or more in a year (before availing exemption under Section 10 (23C)) would now be required to get their accounts compulsorily audited by a chartered accountant.

This has been stipulated in the Taxation Laws Amendment Bill 2005 that was introduced in the Lok Sabha by the Finance Minister, Mr P. Chidambaram, here on Thursday.

"So far, there was no stipulation that medical and educational institutions availing tax exemptions under Section 10 (23C) should get their books audited. The Bill proposes to make audit mandatory for such institutions. They would also be required to file returns if their total income exceeds Rs 1 lakh in a year", Mr Ved Jain, Chairman of the Fiscal Laws Committee of the Institute of Chartered Accountants of India, told Business Line.

All charitable trusts and institutions are alreadyrequired to get themselves registered with the tax department. Charitable trusts availing benefits under Section 11 were hitherto required to get their books audited if their total income (before any exemption under Section 11) was more than Rs 50,000 in a year. This threshold limit would now be enhanced to Rs 1 lakh.

To streamline the process for approval of educational institutions and hospitals (for Section 10 (23C) benefits), the Bill makes it mandatory for the Commissioner of Income-Tax to grant approval or reject the application within 12 months from the end of the month in which the application was received.

The Bill also provides that the Central Board of Direct Taxes (CBDT) would lay down by rules the manner in which an association, university, college or other institution is to be granted approval for availing benefits under Section 35 (related to expenditure on scientific research) of the Income-Tax Act.

It would also spell out the guidelines and conditions to be fulfilled for grant of such approval by the Union Government. The approvals for institutions and universities (under Section 35) would have to be now granted within 12 months from the end of the month in which the application was received.

Further, the Bill also proposes to bring rent paid for plant and machinery, furniture and fittings within the ambit of tax deduction at source. Hitherto, tax deduction at source was required only in respect of rent paid on buildings. It also brings payments on "royalty" under the scope of tax deduction at source.

On disallowance of expenditure under Section 40A(3), the Bill provides that disallowance to the extent of 20 per cent of the sum of payment would be made where any payment exceeding the limit of Rs 20,000 is made otherwise thanby an account payee cheque or account payee bank draft.

Section 40A(3) currently provides that any payment exceeding Rs 20,000 not made by way of a crossed cheque or a crossed demand draft would attract disallowance to the extent of 20 per cent, of such sum, in the computation of the income of the payer.

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