Income Tax Deduction Under Section 80G

Major changes in section 42 of CA, 2013 and rules for Private Placement
August 8, 2018

Income Tax Deduction Under Section 80G

The Finance Minister of India, Ms. Nirmala Sitaraman presented the Union Budget on 1st February, 2020 in which new provisions for charitable institutions or trusts have been introduced. In this article, we will share the details of the amendments and the compliance to be followed by the charitable institutions for claiming of deductions under Section 80G by the donors. The provisions stated below are proposed to be made with effect from 1st June, 2020.

What is the deduction under Section 80G?

As per Section 80G of the Income Tax Act, 1961, deductions are available in full or partly for making donations to certain notified funds, charitable institutions or other institutions/funds set up by the Government of India. This means that all donations do not fall under this section. Only those donations which are prescribed or notified by the government are allowed as deductions. This deduction can be claimed by any taxpayer whether to be individual, company, firm or any other person, resident or non-resident.

Eligibility for claiming Deduction under Section 80G

  • The donations shall be eligible for deductions if it is made to those trusts/charitable institutions which are registered under Section 80G by the Income Tax department.
  • The stamped receipt is required to be issued by the trust/charitable institutions comprising the necessary details of the trust/charitable institution and the amount donated.
  • However, donations made as gifts or in-kind do not qualify for the exemption of tax under this section.

Finance Bill 2020 on claiming deduction under Section 80G

All the trusts/charitable institutions shall be required to file an application before Commissioner or Principal Commissioner to take registration as per new provisions introduced by the Finance Bill 2020 within the time specified below:

  1. All the trusts/charitable institutions that are already registered under the existing laws are required to make an application for registration under Section 80G within 3 months from commencement of the new provisions which is 1st June, 2020. The registration as per the new provisions shall be valid for 5 years.
  2. For all the trusts/charitable institutions that are required to register themselves for the first time, the limit for registration under Section 80G is at least one month prior to the commencement of the previous year relevant to the assessment year for which approval is sought. However such institutions shall be granted provisional registration only that shall be valid for 3 years.
  3. For all trusts/charitable institutions having provisional registration under new provisions, the time limit for final registration is within six months from the commencement of the activities or six months prior to the expiry of provisional registration, whichever is earlier.
  4. All the trusts/charitable institutions whose registration expired as per the new provisions in 5 years are required to get a new registration at least six months prior to the expiry of the registration.

Also, all the trusts/charitable institutions shall file a statement of receipts of donations to the prescribed income-tax authority within the prescribed time specifying all the details of the number of donations received, date of donation, the donor’s name, PAN number, and such other details as may be prescribed.

Further, all charitable trusts and organizations shall furnish to the donor a certificate containing the amount of donation, date of donation, registration and PAN number of the trust or institution and such other details as may be prescribed.

The most important effect of this provision is that the donor shall be provided deduction under Section 80G directly in return of Income only on the basis of the filing of such prescribed statements by such trusts/charitable institutions.

Earlier for claiming the deductions for donations made under Section 80G the donor has to submit the details of the donation made and the details of the trust/charitable institution as provided in the stamped receipt issued by the trust or such institution.  But now the government has introduced above such provisions to improve the reliability of the deductions claimed and to prevent the fake deductions claimed by the taxpayers.

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