Dear Friends,
Greetings from CWS!
I have the following query:
1. We are providing drip irrigation kits to farmers wherein there is a subsidy component of 50% from the Agriculture Department, Govt of AP, contribution from farmers and CWS contribution from the project. The project is funded by EU
2. The farmers are finding it difficult to raise Rs. 20000/- as their contribution which is delaying the process.
3. CWS plans to give loans (interest free) to farmers so that their contribution can be raised and the farmers will return in money in equal instalments over a period of time. These loans are given out of local account.
My specific query is:
1. As an NGO, can we give such loans?
2. Will charging interest amount to commercial activity? Although we are not charging interest, I am trying to clear my doubt
I would request response from you end on this.
Thanks and regards,
__________________
B V Soma Sastry
Director – Finance and Admin
Centre for World Solidarity
Loans with interest can be given by NBFC( Non banking financial co) NGO can’t be equated with NBFC, moreover the interest on loan certainly not a charitable activity and shall be considered as a commercial activity.
Regards,
Shekar
IFA
In this case , it will not be a commercial activity.
It can be taken as commercial activity only if
The purpose of loan is to get interest income and it is a continuous activity, The rate of interest will also play a part in deeming it as commercial activity.
In your case the rate of interest charged will only be nominal and the purpose of granting the amount is towards a bigger goal and so it will not be treated as a commercial activity
In my view, it just a simple loan given from organisations fund, subject to your society by laws permit to same.
If u earn interest on this loan, the interest will be charges as income (as this may not be the object of society) and liable to tax.