The Indian Authority for Advance Rulings (AAR) has decided in a recent case that a foreign non-governmental organisation (NGO) is liable to pay fringe benefit tax (FBT) in India. The FBT will be payable even if there is no income tax payable on its total income in the country.
NGOs by their nature are non-profit organisations and do not generate any income as defined by the Income Tax Act (ITA). AARs ruling means that a non-resident, whose income is not taxable under the ITA, is liable to pay FBT in India.
Any NGO, which has not obtained tax exempt status in India, would be liable to pay FBT, irrespective of whether it is set up as a liaison office or a branch or a chapter in India and is tax exempt in its home country.
While the ruling is specific to one case, it will set precedent for similar entities in the country. Foreign NGOs will have to seek a specific tax exempt status from the commissioner of income tax and will have to be registered with them. The registration requires the NGO to meet certain criteria like 85% of their corpus needs to be invested in development activities, etc, Archana Rajaram, associate at legal firm Nishith Desai & Associates, said.
AAR has given a ruling in a case presented by the Population Council, a US NGO which works in the area of family planning and population control. The NGO enjoys tax exemption in the US under the Internal Revenue Code.
The NGO claims that its activities in India fall within the approved objects for the purpose of granting exemption in the US. It has a regional office and a country head office India. Population Inc does not have exemption from income tax in India under Sections 10 (23C) or 12AA of the ITA.
The NGO voluntarily sought a ruling from the AAR on whether it is required to pay FBT in India. The ruling seems to be discriminating against foreign NGOs and seems unfair in nature, if Indian NGOs are exempt then foreign NGOs should also be treated similarly, T P Ostwal, senior chartered accountant, said.