Ministry in sync with IIMs on tax waiver for donations

If  the Ministry of Human Resource Development (MHRD) has its way, individuals and corporations donating to educational institutions may soon be eligible for tax exemptions.

In a bid to allow the Indian Institutes of Management to (IIMs) to be financially independent, the MHRD will soon propose this to the Ministry of Finance.

If accepted, this may be extended to other education institutes too.

"We are evaluating various options which may allow the IIMs to build a corpus. Thus, the donor may be able to avail tax exemption on their donations to institutes. We are also evaluating the option of non-cash endowments. For instance, also allow grant of stock or equities and not incur tax on long term capital gains. The entire value of the gift could be exempted from IT as a charitable gift, thereby making it of double benefit to the donor," a senior MHRD official told Business Standard.

For endowments in cash or in kind (property), the principal amount remains intact and expenditure would be from the interest accrued.

Securities donated may have the dual advantages of no capital gains tax and tax exemption as charitable donation.

The MHRD had last year asked IIM Calcutta Chairperson Ajit Balakrishnan to study the system, especially in the context of the education sector and make suggestions, with reference to tax breaks and tax provisions.

Balakrishnan told Business Standard that the report was submitted to the MHRD this February.

Last year, Hari S. Bhartia, presented the recommendations of the committee on fund raising by IIMs. His recommendations included setting up of a development office and campaign committees in each IIM. He enumerated possible ways of Fund Raising like Solicitation of Mass Alumni, Campaign Committees, Academic Seminars, lunches and dinners, formation of Board of Counselors, Board of visitors etc.

Bhartia committee used case studies from the fund raising campaigns undertaken by Yale University in its $ 3.5 billion campaign.

MHRD says it is seeking such exemptions on the lines of what the Finance Ministry approved in this Budget.

"In the Budget, the Finance Minister enhanced the tax exemption on payments for scientific research to national laboratories, universities and the IITs-from 175 per cent to 200 per cent. Encouraged by this, we would be seeking exemptions on the same lines," added the MHRD official.

Indian companies have been seeking tax break from the government to increase donations in terms of endowments to higher education institutions.

"Corporations have to give endowments and we support a tax break of over 100 per cent towards the same. If you want more research to take place, more donations are required and the government needs to encourage this through tax breaks," Rajan Mittal, Vice Chairman and Managing Director of Bharati Enterprises had earlier told Business Standard.

At present, donations by companies to higher education institutions overseas is tax exempted as these institutions are run by trusts.

However, many of the trusts running education institutions in India are exempt from tax only if they are registered under the charities commissioner or as a section 25 company under the Income Tax Act.

Also, many companies donate to international institutions abroad as mostly the Indian Income Tax department does not recognise these donations as legitimate ones but as a tax evading exercise.

Also, these business houses say they prefer transparency with regard to the use of funds donated by them.

In October 2010, Harvard Business School received a $50 million donation from the Tata Group.

This has been the largest gift the school received from an international donor in its 102-year history. The funds will be used to build a new academic and residential building on the school's campus in Boston.

Harvard said it hopes to break ground for the building, which will be named Tata Hall, next spring.

Prior to this, Anand Mahindra, head of Mahindra Group, gave $10 million to Harvard where he earned his undergraduate and master's degrees.

FOR A HEALTHY CORPUS... MHRD is evaluating the option accepting non-cash endowments too Allowing grant of stock or equities and not incur tax on long term capital gains Fund raising campaigns undertaken by Yale University to raise $ 3.5 billion was looked into Ajit Balakrishnan, chairperson IIM Calcutta, submitted the report on taxation to the MHRD this February This Budget, FM enhanced tax exemption from 175 per cent to 200 per cent  on donations to IITs and national laboratories