In order to make a purpose of NGO charitable it is not essential that is should be beneficial to the poor section of the society. It is necessary that the benefit to provide a section of the public as eminent from specified individuals. The object of general public utility includes benefit to a section of the public and it is not obligatory that the object should benefit the whole mankind of country or state. It is sufficient if the intention of the General Public Utility is to benefit a specific and specialized section of the public having a common quality as notable from a specified individual.
Purpose of General Public Utility
Following are the purposes of general public utility.
1. Instituting chambers of commerce and industry, registered societies federation and trade associations recognized with purpose of promoting Trade, Commerce as well as Industry.
2. All institutions should be incorporated without any profit motive and can be registered for any of the following purposes-
- For the development and promotion of agriculture;
- For the enhancement and development of scheduled caste as well as tribes;
- For the welfare of the police force and their families;
- For encouraging road safety;
- To communicate technical education, reducing unemployment & setting up model industries in villages.
3. Establishment for promoting cottage or village industries, craftsman and teaching unemployed persons, handicrafts, etc.
4. Institutions should be established to promote creative principles, literature, music, fine arts, dance, etc.
5. The established institutions that owns auditoriums, ‘wadis’, dharamshalas, memorial halls for culture activities, gaushalas and sanatorium which are given for rent for charitable purpose.
6. Foundation for the development of a botanical garden, natural beauty, and for carrying on literary and cultural activities.
7. Institutions established for preservation of places of historic interest like setting up and maintenance or renovation of museum or library.
8. Institutions established for Research Purpose;
9. Institutions established for the promotion of cricket or other sports among the public.
Object of General Public Utility
The advancement of any other object of general public utility shall not be considered as a charitable purpose under Section 2(15) of Income Tax Act, if it comprises carrying out of any Trust activity in the form of trade or business for profit-making purpose or a fee.
On the other hand, this limit is not applicable if the total income receipts from any activity whose depiction is like trade, commerce or business, does not exceed the limit of 15 % of total revenue. The income receipts have to be of the relevant year allowing from the assessment year.
It will only be applicable if activity gets undertaken in the course of carrying out of such development of any other object of general public utility. It should be regardless of the nature of usage, application or retention of the income received from such activities of the Trust.
Branches of Section 2(15) of Income Tax Act
We can say that six out of the seven branches mentioned above allow 100% off from commercial activity incidental to the main charitable objectives. These six branches are very dear to the government. Although these branches may look restrictive; only if we correctly interpret each one would we be able to understand the broad scope it offers. Let us understand each of these six branches from the eyes of a tax officer.
Let us discuss them one by one.
|Six branches of section 2(15)||How is this branch perceived by NGO’s?||What does it Imply?|
|Relief of the poor||Ask for donations and apply those donations to feed poor with food, clothing and other immediate essentials.||Apart from receiving donations, NGO’s may even take up a commercial activity such as rent a place /sell sanitary napkins/ earn interest on FDR. Proceeds from these business activities will be considered as incidental to the objective of relief of the poor if they are applied in a prescribed manner to raise the living standards of the poor.|
|Education||Covers schools, colleges, other institutions imparting academic knowledge through books||Education is an inclusive term and includes vocational courses and skill development also. The exemption under section 10(23C) already covers schools/ colleges. Education here implies helping someone become more skilled even though such teaching may take place in a camp or temporary structures such as tents.|
|Yoga||Cover NGO’s promoting Yoga by conducting classes free of cost or at nominal charges to prove their charitable motives. Any commercial activity, such as the sale of yoga books or mats, will be taxable as a business activity.||Yoga can be an alleviating experience and to create an ambience for such expertise, NGOs may expend much money towards it. Hence, in return, they can charge a higher fee which is commensurate with the benefits offered by such classes. Yoga centres may also sell yoga mats and yoga manuals; earn profits as these commercial activities are incidental to the main objective of promoting yoga.|
|Medical relief||Covers Hospitals, medical clinics and large setups to aid medical relief||Medical relief is also a term with broad meaning. An exemption covers hospitals and other medical institutions under Section 10 (23C). Hence, the objective of stating medical relief as a charitable purpose here is to include different efforts made in the field of medicine such as psychology, homoeopathy, physiotherapy, naturopathy or even by selling herbal medicines.|
|Preservation of the environment||Includes massive-scale efforts towards preserving the environment, such as: – global warming – water harvesting – pollution control – tree plantation – preventing deforestation – preserving rare wildlife species.||Preservation of the environment is not limited to only substantial scale efforts. Even small initiatives such as conducting environmental programs aimed at improving the health of people, providing sanitation and maintenance of the clean environment, garbage recycling, finding alternatives to plastic, and maintaining nurseries or orchards or even providing horticulture services are all covered under preservation of the environment.|
|Preservation or conservation of monuments or places or objects of artistic or historical importance||NGOs established for preservation of historical objects||This branch is generally understood by NGO’s in real sense. However, we would like to emphasize that monument or places or objects of historical objects are the ones notified by the government and do not include creating a model of ancestral homes.|
7th Branch of Section 2(15) of Income Tax Act
Advancement of any other object of general public utility is a residuary branch, in other words – not so dear to the government. Due to its broad nature, it covers every charitable activity possible. It is seen as a harm that is created by the disability formed by the proviso to Section 2(15) of the Income Tax Act. Any commercial business from the advancement of general public utility is eligible to be treated as a charitable purpose only if it fulfills the following two conditions:-
- Commercial activity undertaken is incidental to the main object of the advancement of general public utility;
- Revenue from such commercial activity does not exceed more than 20% of total receipts of the NGO.
Even after laying down the provisions related to General Public Utility, confusion has still prevailed. Nobody has experienced this situation more than new NGO’s who have practically been held in this situation right at the very start.
It is necessary that the benefit to provide a section of the public as eminent from specified individuals. The object of general public utility includes benefit to a section of the public and it is not obligatory that the object should benefit the whole mankind of country or state.
Read our article:Overview of Registration of Trust under Income Tax Act