Many voluntary organisations across the country have urged the Government of India to immediately withdraw the proposed Direct Tax Code (DTC) Bill 2009, introduced by the Ministry of Finance on August 12, 2009.

The new code proposes a new tax regime for trusts carrying on charitable activities as it was felt that the existing taxation regime had many shortcomings. There are over 70,000 trusts and charitable institutions registered with the income tax department, all of whom get tax exemption on their activities at present.

The major concern about the DTC Bill 2009 is that it will levy tax for donations and this could directly affect charitable organisations. All NGOs and charitable trusts registered with the income tax department may be required to pay 15% tax on their surplus, computed on cash basis. This will apply to all non-profit organisations irrespective of the nature of their activities. Currently, registered NGOs are under the income tax net, but not liable to pay tax.

The Voluntary Action Network of India (VANI) on its website said, “Unfortunately from time and again, the government keeps ignoring the contribution of the voluntary sector in supporting it reach the marginalised section in the society. On one hand the government announces the National Policy on the Voluntary Sector and on the other imposes tax restrictions. The voluntary sector is extremely apprehensive about several listing of changes proposed in the new Direct Taxes Code 2009 which appear to lead to several adverse implications for it and which will undermine its financial sustainability and management.”

Other organisations like Social Action Movement (SAM), a non-governmental organisation in Tamil Nadu and Pondicherry has also insisted that the existing provisions should be continued. A press release from SAM on September 30, 2009 said, “The Finance Ministry’s proposed Direct Tax Code Bill 2009 would totally wipe out the voluntary sector in the country thus forcing the poor to get exploited by market forces. The Direct Tax Code Bill 2009 is totally contrary to the Union government’s Voluntary Sector Policy.”

Other recommendations under the Code are a) trusts registered under religious endowment act to be fully tax-exempt b) donation to such religious trust will not enjoy deduction in donor’s hand c) DTC will replace “Charitable Purpose” by the phrase “Permitted welfare activities”. This might reduce innovation and flexibility of approach, as the concept of 'permitted' is left undefined and vague, voluntary organisations argue.