That the Board of Control for Cricket in India (BCCI) is awash with funds on the back of IPL rights conferment this year estimated at a phenomenal ₹48,000 crore, windfall from ICC estimated at $1.15 billion during 2023-27 among others makes it a stupendously profitable organisation. Yet, it is not required to pay any income tax under the Indian income tax law thanks to its not-for-profit status. The Privy Council which predated and presaged the Supreme Court held eons ago that for a charitable trust eleemosynary element is not a precondition for enjoying income tax exemption. BCCI is mentioned in this article metaphorically. There are hospitals, newspapers and educational institutions galore in India which laugh up their sleeves at the guilelessness of the Indian income tax law which mistakes lofty or noble purposes for charity. Many institutions no wonder vie for space and recognition under the omnibus ands residuary category of other activities of public utility. Education and health have hogged top spots for ages when it comes to pursuit of altruism.
Considerable hairsplitting is naturally witnessed in our courts on what is for-profit and what is not-for-profit. Of course, private or family trusts do not make the grade for tax exemption. So, what is needed is a façade or veneer of public benefit to hoodwink the taxman. It is not for nothing that education beckons both the politicians and moneybags. The educational institutions set up by them as trusts be they medical colleges or engineering institutes charge full fees and more from their students but don’t pay any income tax by either ploughing back the profits for the same altruistic cause either in the same year or leisurely over the prescribed number of years in the future. That the trustees and their minions enjoy a luxurious and jet-set life at the expense of the taxpayers has hardly bothered successive governments. What is more galling is there is nothing charitable about these so-called charities — students are billed for their tuitions, food and hostel.
Not-for-profit hospitals raise the hackles of critics and honest taxpayers paying taxes through their noses even more when such hospitals walk away with income tax exemptions. The farce of this exemption would be apparent when hospitals run by companies, listed or unlisted, pay taxes. Both are merciless in fleecing the patients especially those who are insured.
Government must end this farce
It is time the government ended this farce. A noble purpose or veneer of altruism should not be allowed to hold sway. Profit is profit, period. In our country, we have spawned holy cows held in respectful reverence. BCCI might be nurturing cricket in India but that does not mean it should not pay taxes to the government. Ditto for charitable educational institutions and hospitals.
Religious trusts too enjoy income tax exemption on the voluntary contributions to the corpus of such trusts so much so that it is de rigueur for them to write conspicuously at their entrances that whatever the devotees put into the hundi goes to the corpus of the trust which need not even be compulsorily ploughed back for the religious activities within the stated time period. That many of such trusts enure for Hindu gods and goddesses is but natural in a Hindu majority country but that has also incidentally set the governments salivating. In Tamil Nadu for example most of the Hindu temples whose hundis overflow with contributions are coveted by the state government to help it bridge the budgetary deficit! The principle of equality enshrined in the Indian Constitution would be better served by asking these trusts irrespective of their religious affiliations or tags to pay up taxes. In Tirupati for examples a sizeable part of the contributions is in the form of gold or jewelry. They must be converted into cash value at the average rate per gm of gold that prevailed during the financial year for taking them as income. This will end the unseemly itch to covet the funds of rich temples on the part of cash-starved state governments.
While challenging the status quo with reference to charities and religious trusts, simultaneously the government must also disabuse the notion that certain types of incomes are holier than thou. To wit, long term capital gains (LTCG) from the share market is let off with a slap on the wrist 10% tax on excess over ₹1 lac. This engenders heartburn amongst the salaried class. Taxing LTCG at par with other incomes would set the cash registers of the Revenue ringing merrily. Indeed, income tax reforms on the grounds suggested herein would correct the skew and proclivity in favour of low-hanging fruit namely fuel taxes and GST both of which are regressive in nature and hit the poor the hardest. A developed nation, the status India is relentlessly moving towards, is characterised by more of direct taxes.
Alas, if only the government looks at the low-hanging fruit in the realm of income tax itself. Direct taxes are the best corrective in bridging inequality of income and wealth (that prevails both in the US and India) whereas indirect taxes including GST are paid under sufferance. And BTW, it is perverse to run welfare programmes out of the proceeds of fuel taxes and GST. It makes eminent sense to fund welfare projects for the poor from out of the proceeds of direct taxes. In the genre of direct taxes, we have now just one species — income tax. More on this for another occasion.
(S Murlidharan is a freelance columnist and writes on economics, business, legal, and taxation issues)