Income tax

The new amendments to the Charities Income Tax Act 1961: what does it mean for the common man?

Form 10BD and 10BE to take advantage of the Section 80G tax deduction as the May 31, 2022 deadline approaches.

In accordance with the application of amendments to the Income Tax Act 1961, from the financial year 21-22, the method of applying the tax deduction under section 80G on gifts facts to NGOs has changed.

Dhaval Udani, Founder and CEO of DanaMojo says, “Previously, the donor only had to provide the receipt obtained from the NGO as proof. However, starting in FY22, the burden of compliance is now shifted to the NGO who must file a donation statement on Form 10BD by May 31 of each fiscal year.

It further adds, “The NGO will also need to provide the donor with a consolidated donation receipt in the form of a Form 10BE to be downloaded from the Income Tax Portal.”

Implications for the common man

The common man generally does not give for the purpose of saving taxes. Experts say the tax benefits are a hygiene factor, not the primary motivation for giving. And so once someone has donated, they would also like to save on their taxes. Often it is forgotten because the amount is low, receipts are lost, donations are forgotten, etc.

Udani points out: “With the new amendment, the common man will now be able to claim all the tax benefits of his donations. And so, it can further motivate them to give more.

Implications for NGOs

NGOs will now have the additional task of complying and filing by May 31, placing an additional burden on their already limited resources. Therefore, “they may focus more on institutional or CSR donations or high net worth individuals. They may decide to forgo individual donations, especially small donations to reduce compliance overhead,” Udani explains.

“It is therefore entirely possible that small and medium-sized NGOs will avoid receiving donations directly from individuals in the future. Even if they are considering retail donations or a retail strategy, they are more likely to use other intermediaries such as GiveIndia, Charities Aid Foundation (CAF), etc., to obtain donations from individuals, avoiding thus the cumbersome and cumbersome task of filing. voluminous declarations,” he added.

Suggestions for the government

In any case, NGOs will have to bear an additional effort and cost of compliance in this regard. Industry experts say the government can take further steps to reduce this effort and increase donations into the country, given that they have now tightened this process and blocked any tax losses. Like;

1. Remove donor address requirement: Since the new statement will require the PAN number for all donations, the donor address will be available via PAN. “The need to re-enter the donor’s address only adds to the reporting workload and is an additional sticking point for the donor,” Udani points out.

2. Provide 100% tax exemption for 80G donations: With all this transparency, adds Udani, “Most fraud related to exemption claimed but no donation made will be rooted out. The government should therefore grant a 100% tax exemption for charitable donations, much like it does for other investments and insurance.

Overall impact

Overall, experts say there will be greater transparency in the system of donations and tax exemptions claimed. This will ensure that people who do not donate, but claim exemptions, will be removed, reducing the government’s tax loss to that extent and it will give us a true picture of 80G donations in the country.