Port trusts, chambers of commerce, and educational trusts, which are not engaged in charitable work, may lose some of their tax benefits. The government is considering a proposal to redefine and narrow the concept of “charitable activity” to ensure that only deserving organisations that are actually carrying out humanitarian work are eligible for such benefits. If approved, the proposal is likely to find a place in Budget 2008-09.

Section 2 of the Income-Tax Act, 1961, defines “charitable purpose” to include relief of the poor, education, medical relief, and the advancement of any other object of general public utility.

The finance ministry has been concerned for quite some time that several business organisations register as charitable trusts only to take advantage of the tax benefits under Section 11 and 12 of the Income-Tax Act. The current proposal is aimed primarily at checking the misuse of these tax benefits. Commenting on the proposal, Rahul Garg, executive director, PricewaterhouseCoopers, said, “Conceptually narrowing the definition of charitable work would be a good move to ensure that tax benefits are not misused.”