New Delhi: Yoga guru-turned-businessman Baba Ramdev said Patanjali Ayurved Ltd will be turned into a “non-profit” entity as it seeks to plough back earnings from its businesses into charity.
“We’ll not list Patanjali on the stock exchanges. We will list Patanjali in people’s hearts. We are transforming Patanjali into a non-profit organization,” Ramdev said on the sidelines of a press conference. Patanjali has, since its inception, used all profits generated from business for charity, he added.
Patanjali Ayurved is a privately held company that is 98.6% owned by Ramdev’s close aide Acharya Balkrishna, who was ranked the 19th richest Indian by Forbes in 2017 with an estimated net worth of $7.3 billion. Ramdev does not directly own shares in the company.
As a first step, Ramdev has set up a charitable organization, Patanjali Seva Trust, which will be the sole holding entity for all companies that are part of Patanjali Group, according to a group executive who did not want to be named. There are a few dozen registered firms in the Patanjali Group.
While Patanjali Ayurved manufactures and sells a host of consumer packaged goods—from pulses to ghee, biscuits to shampoo, juices to anti-ageing cream—the group has interests in a bunch of other businesses, including educational institutes, ayurvedic medicines and hospitals, to name a few. The company has also expressed interests in entering new areas such as infrastructure, solar power and apparel, among others.
There could be several reasons why Ramdev has set up Patanjali Seva Trust as the holding entity. “It could be an exercise to avoid inheritance tax that the government may impose in the future. A trust as a holding entity ensures succession of the company’s assets, wealth preservation in perpetuity,” said Radhika Jain, partner, Grant Thornton India Llp. “In the structure where a Trust is the holding entity, the tax liabilities go to the holding entity. And, if the Trust’s motto is to use all income for charity, it gets huge tax advantage,” Jain added.
Pranav Sayta, tax partner, EY, said just turning Patanjali Ayurved into a trust will not by itself give much tax advantage. “But if income generated from commercial operations is used in charitable causes as a set objective of the entity, the tax advantage is huge,” he said.
According to the Patanjali executive cited above, Ramdev has written a ‘will’ for Patanjali group companies ensuring succession. “Ownership of Patanjali can never be transferred to anyone other than a sanyasi (saint). The Trust structure is to ensure future of the business empire. After the demise of Baba Ramdev and Acharya Balkrishna, the company will be owned and run by sanyasis only,” the executive said.
In a statement, Ramdev said Patanjali’s main aim behind its activities was to do charity works of “over Rs1 trillion” in areas of education, health, yoga, ayurveda, research, gau seva (cow welfare) and services to the common man. “We have already undertaken charity works to the tune of over Rs11,000 crore,” it added.
To be sure, the profit that Patanjali Ayurved has generated from its business so far is likely to be far less. In the year ended 31 March 2017, Patanjali doubled its revenue to Rs10,561 crore from Rs5,000 crore in the previous year. Patanjali’s meteoric rise was in the last two to three years. Its revenue jumped from Rs446 crore in 2011-12 to Rs2,006 crore in 2014-15.
According to India’s Income Tax Act, Charitable Trusts and Section 8 companies, including non-government entities, can claim tax exemption under Sections 11, 12, 12A, 12AA and 13 of the Income Tax Act.
The Income Tax Act does not prohibit a charitable trust from carrying on business and income generated from businesses undertaken by a charitable trust shall also qualify for tax exemption provided certain conditions are fulfilled.
On 19 October, the Central Board of Direct Taxes (CBDT) released draft amendments to rules relating to the registration of religious and charitable trusts, in line with changes in the Income Tax Act brought through the Finance Act of 2017,