What is the definition of Charitable Purpose? Section 2(15) of Income Tax Act- Relief to poor, Education, Medical Relief, other public utility services- Latest amendments.
As per Section 2(15) of the Income
Tax Act, 1961 the definition of “charitable
purpose” to include the following:-
Any entity with a charitable object of the above nature was eligible for exemption from tax under section 11 or alternatively under section 10(23C) of the Act. Due to this a number of entities who were engaged in commercial activities were also claiming exemption on the ground that such activities were for the advancement of objects of general public utility in terms of the fourth limb of the definition of ‘charitable purpose’.
Therefore, section 2(15) was amended
vide Finance Act, 2008 by adding a proviso which states
that the ‘advancement of any other object of general
public utility’ shall not be a charitable purpose if it
involves the carrying on of –
Newly inserted proviso to Section 2(15) of Income tax Act
As per the inserted new proviso to
section 2(15) will not apply in respect of the first
three limbs of section 2(15), i.e., relief of the poor,
education or medical relief. Consequently, where the
purpose of a trust or institution is relief of the poor,
education or medical relief, it will constitute
‘charitable purpose’ even if it incidentally involves
the carrying on of commercial activities.
Applicability of newly inserted proviso to Section 2(15)
The newly inserted proviso to section 2(15) will apply only to entities whose purpose is ‘advancement of any other object of general public utility’ i.e. the fourth limb of the definition of ‘charitable purpose’ contained in section 2(15). Hence, such entities will not be eligible for exemption under section 11 or under section 10(23C) of the Act if they carry on commercial activities. Whether such an entity is carrying on an activity in the nature of trade, commerce or business is a question of fact which will be decided based on the nature, scope, extent and frequency of the activity.
There are industry and trade associations who claim exemption from tax u/s 11 on the ground that their objects are for charitable purpose as these are covered under ‘any other object of general public utility’.
Taxation on Charitable Trust and NGO
What is approval u/s 80G(5)? Is it necessary for a charitable Institution? How to apply for it? What is the use of approval u/s 80G(5) for Charitable Trust, Charitable Society, Non Governmental Organizations (NGO), Section 25 Companies and other exempted institutions?