The non-profit sector is expected to face tough scrutiny from the taxman in the coming days as the income tax department suspects that charitable institutions are being used to avoid tax payment. A senior official said the focus would specifically be on educational institutions, considering that several politicians in the South and Maharashtra were associated with them and most of them were being run by trusts or through charitable institutions. "Several businesses are also run under the garb of charitable work and we provide exemption to them," the official said.

A case in point was the Board of Control for Cricket in India which till recently enjoyed tax exemption due to its status as a charitable institution. The government has already proposed to tighten the norms for them over the years and provisions have also been incorporated in the Direct Taxes Code Bill to ensure that only genuine entities undertaking charitable get the exemption.

Besides, the department is trying to strengthen tax enforcement for this sector as several of the trusts might also act as money laundering vehicles. "From registration onwards things are in a mess," said an official.

So, the income tax department has set up an internal committee to look into the matter. At present, if an entity wants to avail of tax benefits, which could be exemption, it needs to get a clearance from the government. For this, it can register either with the directorate of exemption or file an application with an income tax commissioner. But there is no way for the two to tally their records, creating a situation where an entity can get away easily The committee is expected to suggest ways to plug these gaps.

The issue is also going to be discussed threadbare during the two-day annual brainstorming session being conducted by the tax department on Tuesday and Wednesday. (Times of India)