Section 80G of the Income Tax Act, 1961 (Act), permitting deduction for donations to certain charitable institutions, funds, etc, in the computation of taxable income, has a long-chequered history, spreading over more than 50 years, giving relief to the taxpayers, who contribute for benevolent objects and charitable purposes. The phrase 'charitable purpose' has been defined in section 2(15) of the Act to include relief of the poor, education, medical relief and the advancement of any other object of general public utility. Section 80G donors are presently entitled to a deduction in the computation of their total income of a specified percentage of the qualifying amount of donations.
Conditions, to be specified
The donations made to institutions, funds, etc, make the donor entitled for tax benefit if the prescribed conditions are fulfilled, some of which are:
(i) The institution or fund is:
(a) constituted as a public charitable trust;
(b) registered under the Societies Registration Act or u/s 25 of the Companies Act; or
(c) is a University established by law; or
(d) is any other University recognised by the government; or
(e) is a Central government approved institution u/s 10(23C) of the Act; or
(f) is an institution financed wholly or in part by the government or a local authority.
(ii) It is approved by the commissioner of Income Tax.
(iii) It maintains regular accounts of its receipts and expenditure.
(iv) It is not expressed to be for the benefit of any particular religious community or caste, etc.
Extent of donations
Deduction equal to 50% or 100% of the qualifying amount is admissible for donations to eligible notified institutions, funds, etc. For example, 100% deduction is permissible u/s 80G for the donations given to the institutions like -
National Defence Fund of the Central government;
Prime Minister's National Relief Fund;
National Foundation for Communal Harmony;
Fund set up by a state government for medical relief to the poor; and many others.
If aggregate of the sums donated exceed 10% of the adjusted gross total income, the amount in excess of 10% ceases to be entitled for tax benefit.
Donations in kind
Donations in kind are not entitled for tax benefit u/s 80G.
The scheme of giving tax relief needs to be improved in following respects:
Presently for entitlement for 100% deduction, the section 80G has to be amended. Some institutions, in whose cases 100% deduction is allowed, are of relevance only for some time after which they lose relevance, as no contributions are made to these, but their names continue to remain in section 80G because of amendments made. The instances are:
(i) Prime Minister's Armenia Earthquake Relief Fund;
(ii) The Africa (Public Contributions - India) Fund;
(iii) The Maharashtra Chief Minister's Relief Fund during the period October 1, 1993 and ending on October 6, 1993 or to the Chief Minister's Earthquake Relief Fund of Maharashtra;
(iv) The Andhra Pradesh Chief Minister's Cyclone Relief Fund.
No contributions are made to such funds after some time, when the need for relief vanishes, but their names continue to figure in section 80G making the section look long-winding and complex.
To avoid situations of the above nature, the government should delegate power for notifying, with FM's approval, institutions entitled to donations for which taxpayers can claim 100% deduction (whose names now have to be incorporated in section 80G by amendments through annual Finance Acts) to the CBDT.
The list of these can be incorporated in the I-T Rules, 1962. A copy of the notification, containing such names, can be placed in both the Houses of Parliament. The names can be deleted by notifications by the CBDT, if the institutions need for funds vanishes because of efflux of time or on other grounds. This would be a more convenient and time saving method for giving tax relief for contributions in deserving causes.
The 10% limit for getting tax benefits needs to be removed. There seems to be no justification for curtailing one's desire to contribute to noble causes.
Benefit presently available for cash donations should be extended to donations in kind also.
The needs of the country for philanthropic help, where nearly 30% population lives below poverty line, are vast. It is, therefore, necessary that the process of getting tax benefit for donors is rationalised and simplified.
The author is ex-chief commissioner, Customs and Central Excise