Analysis: Section 80G of Income Tax Act

Reading time: 8-10 minutes.

Amid the coronavirus outbreak, the financial sector of the economy has been prepping itself for a post-COVID 19 world. The fact that the government has brought in crucial tax reforms recently, for example, reduction of corporate tax rates for companies, the announcement of deduction of tax for assesses of donations for Shri Ram Janbhoomi Teerth Kshetra came as a surprise. The Central Board of Direct Taxes announced that the institution will be eligible for exemption under Section 80G of the Income Tax Act, 1961.

This news came through after the landmark case of   M Siddiq (D) Thr Lrs v. Mahant Suresh Das & Ors was decided in November 2019, popularly referred to as the ‘Ayodhya Dispute’ was adjudicated and Shri Ram Janbhoomi Teerth Kshetra was set up as a trust and had been given the task of construction of Ram Mandir after the Supreme Court’s direction.

The Central Board of Direct Taxes(CBDT) stated that the trust was set up as “a place of historic importance and a place of public worship of renown” under clause (b) of sub-section (2) of Section 80G of the Income-Tax Act and granted deduction to the extent of 50% to those who make donations to the Trust.

What exactly is the section about?

The idea under section 80G of the Income Tax Act of 1961 is to mostly promulgate donations to trusts and charities. The section focuses on the exemption of 50 per cent or 100 per cent based on the gross total income,  that is provided to a certain taxpayer, irrespective of it being a company, a firm or an individual who is eligible for tax deductions to only a specified list of institutions given elaborately in the above section. However, it is important to note that the maximum limit is of 10 per cent of total income that can be accounted for deductions calculated under section 80G. The donations that are made to attract the purview of this section also has to be made in the form of cash or cheque or a draft, and that the amount of cash limit cannot exceed 2000 rupees for exemption under the same.

Salient features of section 80G

Benefit can be claimed by:  Under section 80G, the benefit of tax deduction can be claimed by a person or an individual, a firm and also by a company.

Mode of payment under section 80G: The payment under this section can be made via a cheque, a draft or cash. However, the cash limit shall be restricted to Rupees 2000, w.e.f, financial year; 2017-18. Any donation exceeding the set limit shall be made through a cheque or a draft to qualify for deductions under this act.

Mode of claiming deduction: To be eligible for deduction under the said Act, the respective individual ought to submit details specifying the name, pan, address and the amount of contribution in his income tax returns.

Donations eligible for 50% deduction without qualifying limit:    1. Jawaharlal Nehru Memorial Fund 2. Prime Minister’s Drought Relief Fund 3. Indira Gandhi Memorial Trust 4. Rajiv Gandhi Foundation

Donations eligible for 100% deduction without qualifying limit:   As mentioned in the section, there are a few specified institutions to which the deduction is subject to 100 per cent exemption, noting a few, like, the Swachh Bharat Kosh, Clean Ganga Fund, National Defence Fund set up by the Central Government Prime Minister’s National Relief Fund and others listed under clause 2(a) of section 80G.

Donations eligible for 100% or 50 % deduction subject to 10% of adjusted gross total income: In place of the above section, the act specifies that some items under the notified institutions are subject to a qualifying limit of 10 per cent of the total gross income. For example, the Donation to Government or any approved local authority, institution or association to be utilized to promote family planning is exempted by 100 per cent, whereas, Donation to Government or any local authority for utilization for any charitable purpose other than promoting family planning has been given an exemption as to 50 per cent. 

Landmark cases

 N.N.Desai Charitable Trust vs. CIT (2000) 246 ITR 452,

The Gujarat High Court has held that while processing the application for approval under section 80G, the commissioner is not expected to act as an assessing authority, but his enquiry should be confined to finding out whether the trust satisfies the prescribed conditions.

H.H Sri Rama Verma V. Commissioner Of Income Tax

In the above case, the appellate tribunal opined that the donations falling under the purview of section 80G can only be made in cash, cheque or draft and not in kind. The facts of this case are, the appellant who was an assessee under the Income Tax donated shares worth Rs. 12, 50, 000 to each of two trusts, namely, H.H. Maharani Setu Parvati Bayi Trust and H.H. Princess Lakshmi Bayi Trust. Hence, the total donation by the appellant being Rs 25,00,000. In lieu of the aforementioned exemption granted to an individual, the appellant claimed deductions under the same. However, the appellate tribunal came to a note-worthy conclusion stating that the expression ‘sums’ in the specified section of the IT Act did not include any sort of transaction that could account for donations in the form of a share.

CIT V. Asian Cement Company and CIT v. Abhai Maligai,

There have been several conflicts as to the exact definition of the expression ‘sums’. In the above case, the court mentioned that while interpreting 2(a) of the section, the nature of the transaction is to be taken and hence the donation could also be in kind. This interpretation of the said section leads to a plethora of cases as to questioning the ambiguity of the expression.

CIT v. Smt Dhirajben R. Amin

The lack of judgment on the debate relating to whether the word, ‘sums’ could be taken as cash or kind transactions, the court in the aforementioned case was of the view that section 80-G(2)(a) only stated the fact that the expression referred to all amounts of money paid in cash, and hence donations cannot be in kind.

This debate paved the way for further judicial scrutiny and that the parliament intervened and “added Explanation 5 to Section 80-G by the Finance Act, 1976.” The explanation read as: For the removal of doubts, it is hereby declared that no deduction shall be allowed under this section in respect of any donation unless such donation is of a sum of money.

Critical analysis

In the present time, the government has worked to create a tax regime that is effortless and smooth. The requirement of furnishing of documents has always been frowned upon in our country since the process can be cumbersome and tedious. The new budgetary reforms regarding the application of section 80G have shown quite some changes as to its execution from the past. Eliminating the load of paperwork, the government in the Budget 2020, announced that: “To ease the process of claiming a deduction for the donation, it is proposed to pre-fill the donee’s information in taxpayer’s return based on information of donations furnished by the donee.

This would result in a hassle-free claim of deduction for the donation made by the taxpayer.” Further which, the government announced that the certificate of registration of charitable institutions that had been assessed only once, will be now done, in five years. Meaning, the charitable institutions have to get their licenses renewed every five years. In addition to the above, the donor will not receive a deduction under Section 80 G unless the trust has filed a statement of all donations received reflecting the donation. Therefore, there will be a cross-check. If the donor trust fails to do so, the donor would lose the benefit of the deduction.

Surprisingly, in time where the world is dealing with the predicament of the coronavirus outbreak, the government to encourage the contribution of funds to fight the deadly virus, added “PM Cares fund” under the purview of section 80G and the deduction for the same shall be 100 per cent.

This action by the government helps manoeuvre a process that takes the burden from the taxpayer and shifts utmost responsibility to the donee institution. This will further create an environment that is responsible and transparent by bringing in every ounce of details at every step of the process, whether it is filling or registration.

Conclusion

The nobility of donating can never be undermined. The government which not only regulates policies relating to administration and management but,  also takes extra effort in pulling down a tax regime that provides for deductions in cases of charity.

This move by the government builds an idea of full support that is extended by it for purposes like that of donations/charity. It is not only commendable to donate but also helps in creating changes to the ones who desperately need our help. It makes sure that for every tiny bit of donation that you make; you receive a reward through tax deductions. The idea of providing a 50% or 100% tax deductions will not just facilitate new donations but also lead to massive development of the country.

So, the next time, you contemplate the idea of charity, do not think twice and go ahead in doing your little part and also claim your reward through tax deductions.

Author: Salonee Nayak from School of Law, University of Petroleum and Energy studies, Dehradun.

Editor: Anmol Mathur from Symbiosis Law School, NOIDA.

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