Section 80G

The existing process for approving institutions u./s 80G

Section 80G allows a deduction for the donation made to certain funds and institutions. The deduction for such donation is allowed to the donor only if donee (receiving end) fund or institution is approved by the Principal Commissioner or Commissioner, and fulfills other conditions. Hitherto, the institution or fund had to be approved by the CIT in accordance with the rules made on this behalf. Such approval was valid for perpetuity till it was withdrawn/canceled.

Need of change in process

  1. Procedure relating to approval under section 80G is changed with effect from 01-06-2020,
  2. Due to the crisis caused by COVID-19, the CBDT announced to defer the implementation of the new procedure for registration under the aforesaid sections.
  3. Thus, the Amendment Act, 2020 deferred the date of enforcement of the new procedure to 01-04-2021.

Issues in new process :

  1. EXPENDITURE ON RELIGIOUS ACTIVITY

New Form 10A and 10AB have a category of charitable cum religious organization which settles the confusion of whether an organization can be both charitable as well as religious simultaneously.

The Forms separately require reporting of expenditure on religious activities which will be considered for eligibility of 80G approval.

Normally the religious trusts are not allowed to be approved under section 80G. However, Section 80G(5B) allows for a charitable organization to have a religious activity not exceeding 5% of the total income in that previous year.

The organizations having 80G approval and going for revalidation of this approval should ensure that they are complied with the provisions of section 80G(5B) before making such an application for revalidation.

  1. STATEMENT OF DONATION

With Finance Act, 2020 deduction on account of the donation under section 80G shall be allowed to the donor only on the basis of the statement filed by the donee trust or institution. Hence, if a statement is not filed, the donor will not get a deduction for the donation.

In case of delay in filing such a statement, a late fee of Rs. 200 per day shall be applicable under newly inserted Section 234G of the Income-tax Act.

Further, a penalty under Section 271K, which shall not be less than Rs. 10,000 and which may extend up to Rs. 1 lakh, shall be leviable if the trustor institution fails to file such statement or fails to issue a certificate of donation.

2.1. Due date of filing of Statement and Issuing Certificate

The newly inserted Rule 18AB provides that the statement in Form 10BD shall be filed on or before the 31st of May, immediately following the financial year in which the donation is received. The donee is also required to issue the certificate in Form 10BE which is also required to be issued on or before the 31st of May, immediately following the financial year in which the donation is received.

Hence, if the certificate in form number 10BE is to be generated and downloaded from the web portal then furnishing the certificate by 31st May as provided in the rule may create practical difficulty as a statement of donations is also required to be submitted by 31st May.

2.2. Filing of Correction Statement

One may need to wait for the relevant procedure to be laid down to submit the correction statement for correcting clerical errors such as wrong name, PAN, amount, etc.

2.3. Filing of NIL Statement of Donations

Rule 18AB doesn’t contain any provision to clarify whether a reporting entity is required to submit a nil statement of donation.

2.4. Accounting Challenge

Form 10BD provides that, while reporting the aggregate amount of donation received from any person donation type should be reported on the basis of nature of donation i.e. (Corpus, specific grant, others).

Hence NGOs need to adjust the present accounting framework to get the above information at year-end.

  1. DEDUCTION TO DONOR

The trusts or institutions which have been granted perpetuity of approval under section 80G are required to make an application again under the amended provision of section 80G within 3 months from the date on which the new provisions shall come into force i.e. application has to be filed on or before 30th June 2021.

Now, the question arises if an organization collects donations but does not apply for renewal or if the approval application is canceled.

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