INDIA BUSINESS WORLD - APRIL - MAY 2007
The Month that was ...

CORPORATES WILL SOON HAVE TO SPELL OUT DETAILS OF CHARITABLE INSTITUTIONS RECEIVING DONATIONS IN TAX RETURNS

BUSINESS houses that have been using charities to divert funds and escape tax may now find the going tough. The government is about to make it mandatory for companies to name the charitable institutions receiving donations. The details will have to be spelt out in the tax returns filed by companies.

The information will help tax officials clamp down on outfits set up just to siphon off funds. "It will also mean greater accountability to shareholders of companies belonging to groups that have set up trusts," said a government official.

The draft corporate tax returns form, which has been placed in the public domain, will be notified next week. "The proposed move by the government will increase transparency levels and improve disclosures," said Infosys CFO V Balakrishnan.

Several old industrial houses in India have set up charitable trusts that work for a public cause. "Trusts formed by big business families are regularly audited and their accounts are transparent. The government's move will make no difference to them. Only those trusts that are ostensibly set up for charitable purposes will feel jittery now," said an industry body representative.

The government has been gathering evidence on scores of trusts that were set up just to launder money. Fears are that some of them are just conduits to take money out of listed firms into establishments controlled by the promoters. This can be tracked when companies disclose the names of the trusts and their permanent account numbers (PAN). "We expect at least half the dubious trusts to close shop," the official said.

Tax lawyers and chartered accountants interpret the move as a convenient tool for the tax department to gather information about charitable trusts.