The Supreme Court of India last Thursday delivered a landmark verdict, reinforcing the principle that salaries paid to nuns and priests teaching in government-aided schools are indeed subject to income tax. This decision came as a setback for religious orders that claimed an exemption based on their vows of poverty and their long-standing practice of funnelling such salaries directly to their dioceses. The ruling upheld an earlier decision by the Madras High Court and is poised to have significant implications for Christian institutions in the country. The case arose when the Income Tax Department sought to deduct Tax Deducted at Source (TDS) from the salaries of nuns and priests employed as teachers in schools receiving government aid. The religious orders argued that, since these salaries are not directly enjoyed by the clergy but are redirected to the diocese for charitable purposes, they should be exempt from TDS. Initially, a single judge of the Madras High Court sided with the clergy, citing Canon Law, which views priests and nuns as having suffered “civil death” upon taking their vows, thus supposedly exempting them from such taxes. However, the Division Bench of the same court overturned this ruling in 2019, which was subsequently challenged in the Supreme Court. Last week, a three-judge bench led by Chief Justice D.Y. Chandrachud made it unequivocally clear: “It’s a salary paid to the individual, irrespective of where it goes after.” The bench emphasized that the government, when providing grants to aided schools, directs funds specifically for teacher salaries, not for religious organizations. Therefore, these salaries must be treated as taxable income, regardless of their eventual destination.
In defense of the clergy, Senior Advocate Arvind Datar argued that the funds were never directly controlled by the schools but were instead routed to diocesan accounts registered as charitable trusts. He maintained that, for over 85 years, this system had been in place without any tax implications. However, the Supreme Court did not buy this argument. “The government pays the school, not the diocese,” the bench observed, highlighting that the funds, once granted, are earmarked for paying teacher salaries. While the Church argues that these salaries are eventually used for charitable purposes, the Court remained firm that such transfers do not exempt the initial payment from being classified as taxable income. The decision, therefore, underscores a strict interpretation of tax laws, irrespective of the religious or charitable affiliations of the recipients. This ruling comes at a time when Christian organizations in India are already grappling with financial difficulties due to tightened restrictions under the Foreign Contribution (Regulation) Act (FCRA). The FCRA, which governs foreign donations, has been amended multiple times, with the most recent changes in 2020 and 2022 imposing severe restrictions. Many Christian ministries have lost their licenses under this act, further straining their resources. The Supreme Court’s decision to enforce TDS on clergy salaries adds another layer of financial pressure on these institutions.
With approximately 13,000 Christian-run schools operating across India, this judgment could have widespread implications. The Christian community, which constitutes about 11.5% of India’s religious minority population, runs nearly 72% of the country’s minority schools. The enforcement of TDS on salaries could lead to financial strain on these schools, potentially affecting their ability to provide affordable education, especially in underserved areas. While the Supreme Court’s ruling is legally sound, it raises pertinent questions about the balance between enforcing tax laws and acknowledging the unique nature of religious vows. Should nuns and priests, who live lives of poverty and direct their earnings toward charity, be subjected to the same tax obligations as others? Or does this verdict reflect a necessary step to ensure transparency and accountability in the use of government funds? Critics argue that the decision reflects a growing trend of increased scrutiny and regulation of Christian organizations in India. Supporters, however, believe it ensures that government funds are used as intended, with no room for ambiguity. As India navigates its complex landscape of religious pluralism and state neutrality, the Supreme Court’s decision is a reminder that even religious institutions are not above the law. Ultimately, the judgment may force religious schools to reevaluate their financial structures and compliance strategies. In a country that prides itself on secular governance, the law must apply uniformly, even if it means that cherished traditions must adapt to modern legal standards.
