NPOs and trusts: IT exemptions replaced with 100 percent tax credit The income tax exemptions available to the non-profit organisations, trusts and welfare institutions, etc, have been withdrawn and replaced with 100 percent tax credit under the Finance Act, 2014. Through an income tax circular issued here on Friday, the FBR has explained 100 percent tax credit in respect of NPOs, trusts and welfare institutions under relevant sections, ie, section 100C and 159 and Clauses (58), (58A), (59) and (60) of Part-I of 2nd Schedule. The FBR said that previously specified income of certain non-profit organisations, trusts, welfare institutions, etc, was exempt from tax under clause (58), (58A), (59) and (60) of Part-I of 2nd Schedule subject to conditions and restrictions specified therein as per following details: Firstly, a trust administered under a scheme approved by the Federal Government in this behalf and established in Pakistan exclusively for the purposes of carrying out such activities as are for the benefit and welfare of ex-servicemen and serving personnel, including civilian employees of the Armed Forces, and their dependants; or ex-employees and serving personnel of the federal government or a provincial government and their dependents, where the said trust is administered by a committee nominated by the federal government or, as the case may be, a provincial government. The nature of income exempt included donations, voluntary contributions, subscriptions, house property, investments in the securities of the Federal Government and so much of the income chargeable under the head Income for business as is expended in Pakistan for the purposes of carrying out welfare activities. Secondly, a trust or welfare institution or non-profit organisation approved by chief commissioner of Income Tax for the purposes of this sub-clause. Any income was exempt in case of a university or other educational institution being run by a non-profit organisation existing solely for educational purposes and not for purposes of profit. Held under trust or other legal obligations wholly, or in part only-for religious or charitable purposes and is actually applied or finally set apart for application thereto. In this case, nature of exempt income cover income from investments in securities of the Federal Government, profit on debt from scheduled banks, grant received from Federal Government or provincial government or District Government, foreign grants and house property. In case of religious or charitable institution, excluding private religious trust which does not ensure for the benefit of the public, the nature of exempt income cover any income derived from voluntary contributions applicable solely to religious or charitable purposes of the institution. Now all the above exemption have been withdrawn and replaced with tax credit equal to the amount of tax payable on such income, it is also clarified that approval already obtained in respect of non-profit organisations, trusts and welfare institutions under the omitted sub-clause (3) of clause (58), shall continue to be valid for sub-section (2) (c) of section 100C. However, the tax credit admissible shall be subject to fulfilling the following conditions: Return has been filed, tax required to be deducted or collected has been deducted or collected and paid and withholding tax statements for the immediately preceding tax year have been filed. The FBR said that this concept of providing such concessions in case of NPOs is preferable method and will promote strong documentation and compliance of tax laws by NPOs/NGOs. Previously income of the foregoing trust, welfare institutions, non-profit organisations, religious and charitable institutions, universities, etc was exempt from tax and they were entitled to get exemption certificate from collection and deduction of tax (withholding us) from them. Since the exemption has been withdrawn and replaced with 100% tax credit a corresponding amendment has also been made in section 159 for grant of exemption certificate from collection and deduction of tax (withholding tax) from them in eligible cases. The exemption in the past or 100 percent tax credit under section 100C, introduced through Finance Act 2014, is in respect of specified incomes only. For example income under section 37 or 37A (except securities of the federal government was neither exempt under the previous regime nor tax credit is available under newly introduced section 100C. Moreover, business income was also not totally exempt and exemption for business income was restricted to an amount which bears to the income under the said head the same proportion as the said amount bears to the aggregate of the incomes from the specified sources of income. Under the newly introduced section 100C, tax credit (there is a typo error in proviso to clause (a) of sub-section (2) where instead of tax credit the word exemption appears) is also restricted to the same amount, the FBR added.
Posted on: Sat, 19 Jul 2014 05:39:35 +0000
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