With the new amendment, the common man will now be able to claim all the tax benefits of his/her donations. And thus it may further motivate them to give more.
Form 10BD and 10BE for availing tax deduction under Sec 80G as the deadline approaches on 31st May 2022.
As per the enforcement of the amendments to the Income Tax Act 1961, from FY21-22, the method for availing tax deduction under Section 80G on donations made to NGOs has changed.
Dhaval Udani, Founder and CEO-DanaMojo say, “Earlier, the donor only had to provide the receipt obtained from the NGO as proof. However, from FY22, the burden of compliance is now shifting to the NGO which needs to file a Statement of Donations in Form 10BD by 31st May of each financial year.
He further adds, “The NGO will also need to provide the donor in the form of a consolidated Donation Receipt in Form 10BE to be downloaded from the Income Tax portal.”
Implications for the common man
The common man usually does not give with the purpose of saving taxes. Experts say tax benefits are a hygiene factor and not the primary motivator for giving. And thus once someone has given, they would like to also save on their taxes. Many times it is forgotten since the amount is small, 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/her donations. And thus it may further motivate them to give more.”
Implications for NGOs
NGOs will now have the additional task of compliance and filing before May 31 which will put an additional burden on them with their already limited resources. Therefore, “they may focus more on institutional or CSR giving or high net worth individuals. They may decide to forego individual donations—especially the small-ticket ones to reduce the overhead of compliance,” says Udani.
“It is therefore quite possible that small and mid-sized NGOs may eschew taking donations directly from individuals going forward. Even if they do consider retail donations or a retail strategy, they are most likely to use other intermediaries such as GiveIndia, Charities Aid Foundation (CAF), etc, to get donations from individuals, thus avoiding the cumbersome and resource-heavy task of filing voluminous statements,” he further adds.
Suggestions for Govt
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 some other steps to reduce this effort and increase giving in the country given that they have now tightened this process and plugged any loss of tax. Such as;
1. Do away with the donor address requirement: As the new statement will require the PAN number for all donations, the donor’s address will be available through PAN. “The need for capturing the donor address again just adds to the reporting burden, and is one more point of friction for the giver,” points out Udani.
2. Provide 100 per cent tax exemption for 80G donation: With all this transparency, Udani adds, “most of the frauds related to the exemption claimed but no donation made, will be rooted out. The government should therefore provide 100 per cent tax exemption for charitable donations, much like it does for other investments and insurance.”
Overall, experts say there will be greater transparency in the system for donations and resulting tax exemptions claimed. This will ensure that people not donating, but claiming exemptions, will be removed thus reducing the tax loss of the government to that extent and it will give us a true picture of 80G donations in the country.