Electronic tax

Changes to tax benefit rules on donations

Millions of people often donate to charity to support causes they believe in. The government provides certain tax benefits under Section 80G of the Income Tax (IT) Act on gifts. However, only those who opt for the old tax system can benefit from it. In order to ensure transparency and avoid false donation tax claims, the government has recently provided that charitable trusts or institutions receiving donations must file a donation declaration with the IT department. The government notified Form 10BD to report donations received during the year. In addition, after filing the statement of gifts on Form 10BD, trusts or charitable institutions must issue the certificate of gift on Form 10BE to the donor.

Consequently, the burden of compliance has gradually shifted to charities. It started with revalidation of registration to receive benefits under Sections 12A and 80G, followed by charities with Section 80G approval having to file a statement of donations on Form 10BD. Form 10BD for each fiscal year must be filed by May 31 of the immediately following fiscal year. This takes effect from tax year 2022-23 (for fiscal year 2021-22) and the deadline for filing Form 10BD is May 31.

Impact of this amendment

If we dig deeper, this amendment has far-reaching effects beyond compliance. The procedure to take advantage of the Section 80G deduction for a donor before said amendment was quite simple. The trust/charitable institution simply had to ensure that the donation receipt was issued to the donor with a valid 80G certificate. Based on which the donor would easily benefit from the Section 80G deduction when filing the tax return for the donated donation. Apart from this, the trust or charity had no other obligation to fulfill to ensure that the donor was eligible to benefit from the Section 80G deduction.

Now, after the amendment, the donor can only take advantage of the Section 80G deduction if the trust or institution (donee) provides the correct information to the IT department via Form 10BD regarding the donation. It then issues a certificate (Form 10BE) to the donor. The deduction will be pre-populated when filing the tax return.

Form 10BD requires the name and address of the donor, the donor’s unique registration number (Aadhaar, PAN, passport, etc.), the date of issue of this unique registration number, the type of donation ( whether it is a corpus, a specific grant or other), the mode of receipt of the donation (cash, nature, check or digital mode), the amount of the donation (and the currency). Form 10BD can be filed electronically through the Electronic Income Tax Filing Portal. Go to ‘e-File’ > ‘IncomeTax Form’ > ‘Form 10BD’ (Persons not dependent on any source of income). Fill in basic information, donor and donation details, and complete verification. Once all the details are filled, complete the process by electronic verification and the form is submitted successfully. Once the Form 10BD has been filed, the Form 10BE can be generated under “Filed Forms”. These certificates must be uploaded and issued to all donors listed on Form 10BD.

Form 10BE is required for donors to now claim the Section 80G deduction. Therefore, if the donee fails to generate this in time or has incorrect or non-existent information about their donors, the donor will not be eligible for the benefit. Next time donors can reconsider donating to the same charitable trust if claiming the Section 80G deduction is an issue.

Consequences of non-compliance

Any trust/charitable institution receiving donations will need to complete Form 10BD to comply and provide its donors with the benefits of Section 80G. If they do not, a penalty of 200 per day shall be imposed in accordance with the Information Technology Act.

Archit Gupta is the founder and CEO of Clear.

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