New Law will Tax Charities Converting to For Profit
Aug. 17 – Under the new direct tax law, a non-profit organization wanting to shift to a for-profit commercial organization will now taxed.
A non-profit organization that wants to change to a for-profit organization must pay a tax rate of 30 percent of its net worth. According to The Economic Times, tax would still be levied even if it fails to transfer upon its dissolution all its assets to any other non-profit organization.
The move is seen as a way of addressing a tax loophole that allows non-profit organizations to avail of low-cost land and income-tax exemptions from the government.
The tax liability of a non-profit organization would be 15 percent of the surplus coming from welfare activities and the amount of capital gains on transfer of an investment asset. The surplus amount is computed by gross receipts less outgoings. Gross receipts includes voluntary contributions, proceeds, donations and subscriptions received by an organization during a financial year, any rental income, and income derived from a business incidental to permitted business activities, reports The Economic Times.