INCOME TAX - PRIVILEGES TO THE DONORS U/S 80G
 

INTRODUCTION

01 As we already know that an NGO can avail income tax exemption by getting itself registered and complying with certain other formalities, but such registration does not provide any benefit to the persons making donations. The Income Tax Act has certain provisions which offer tax benefits to the "donors". All NGO's should avail the advantage of these provisions to attract potential donors. Section 80G is one of such sections.

REGISTRATION UNDER SECTION 80G

02 If an NGO gets itself registered under section 80G then the person or the organisation making a donation to the NGO will get a deduction of 50% from his/its taxable income. The NGO has to apply in Form No. 10G As per Annexure-29 to the Commissioner of Income Tax for such registration. Normally this approval is granted for 2-3 years.

The Finance Act, 2009, has deleted the five year restriction under proviso to sub section (5) clause (vi). In other words, registration certificates issued after 1st October, 2009 can be considered as one time registration unless any specific restriction is provided in the certification itself.

DOCUMENTS TO BE FILLED WITH FORM 10G

03 The application form should be sent in triplicate to the Commissioner of Income Tax alongwith the following documents :

i) copy of income tax registration certificate.
ii) detail of activities since its inception or last three years whichever is less
iii) copies of audited accounts of the institution/NGO since its inception or last 3 years whichever is less.

CONDITIONS TO BE FULFILLED UNDER SECTION 80G

04 For approval under section 80G the following conditions are to be fulfilled :

i) the NGO should not have any income which are not exempted, such as business income. If, the NGO has business income then it should maintain separate books of accounts and should not divert donations received for the purpose of such business.

ii) the bylaws or objectives of the NGOs should not contain any provision for spending the income or assets of the NGO for purposes other than charitable.

iii) the NGO is not working for the benefit of particular religious community or caste.

iv) the NGO maintains regular accounts of its receipts & expenditures.

v) the NGO is properly registered under the Societies Registration Act 1860 or under any law corresponding to that act or is registered under section 25 of the Companies Act 1956.

EXTENT OF BENEFIT

05 There is ceiling limit upto which the benefit is allowable to the donor. If the amount of deduction to a charitable organisation or trust is more than 10% of the Gross Total Income computed under the Act (as reduced by income on which income-tax is not payable under any provision of this Act and by any amount in respect of which the assessee is entitled to a deduction under any other provision of this Chapter), then the amount in excess of 10% of Gross Total Income shall not qualify for deduction under section 80G.

In other words, while computing the total income of an assessee and for arriving at the deductible amount under section 80G, first the aggregate of the sums donated has to be found out. Then 50 per cent of such donations has to be found out and it should be limited to 10 per cent of the gross total income. If such amount is more than 10 per cent of the gross total income, the excess will have to be ignored.

CASH PAYMENT UPTO RS. 10000/-

06 The other important change made by the Finance Act, 2012 is that any donation under section 80G has to be made otherwise than in cash, if the amount exceeds Rs. 10,000/-. In other words, donation in excess of Rs. 10,000/- under section 80G should be made through account payee bank transfers.

IILUSTRATION OF BENEFITS UNDER SECTION 80G

07 The persons or organisation who donate under section 80G gets a deduction of 50% from their taxable income. Here at times a confusion creeps in, that the tax advantage under section 80G is 50%, but actually it is not so. 50% of the donation made is allowed to be deducted from the taxable income and consequently tax is calculated.

08The ultimate benefit will depend on the tax rates applicable to the assessee. Let us take an illustration. Mr. X an individual and M/s. Y Pvt. Ltd., a Company both give donation of Rs. 1,00,000/- to a NGO called Satyakaam. The total income for the year 2003-2004 of both Mr. X and Ms. Y Pvt. Ltd. is Rs. 2,00,000/-. Now assuming that the rates are 30% for the individuals and 40% for the Companies without any minimum exemption limit. The tax benefit would be as shown in the table :

  Mr. X MS. Y Pvt. Ltd.
i) Total Income for the year 2003-2004 2,00,000.00 2,00,000.00
ii) Tax payable before Donation 60,000.00 80,000.00
iii) Donation made to charitable organisations 1,00,000.00 1,00,000.00
iv) Qualifying amount for deduction (50% of donation made)
50,000.00 50,000.00
v) Amount of deduction u/s 80G (Gross Qualifying Amount subject to a maximum limit 10% of the Gross Total Income)
20,000.00 20,000.00
iv) Taxable Income after deduction 1,80,000.00 1,80,000.00
v) Tax payable after Donation 54,000.00 72,000.00
vi) Tax Benefit U/S 80G (ii)-(v) 6,000.00 8,000.00

Note : The tax rates and mode of computation is not actual