This article is written by Shivangi Ghosh, currently pursuing BA LLB from Amity Law School, Delhi. The article elaborates on various types of donations that a company makes and when these are taxable.
Charitable donations are contributions that are made to certain prescribed relief funds which are claimed as deductions as per the provision of Section 80G of the Income Tax Act. All donations, however, are not eligible for deductions under Section 80G but it is not limited to any person/assessee, it can be availed by anyone who donates. Donations are considered as donations only when certain institutes are funded. This section is not inclusive of foreign donations and donations to political parties. This deduction can be claimed by any person, company, or any other entity.
Types of donations by companies
In order to be exempted from paying tax, there should be at least 85% of a company’s income that is going to the charity. Following are the charitable purposes that are exempted:
- Poverty relief
- Educational donation
- The contribution made to Yoga
- Medical relief
- Preservation of the environment
- Improvement of general public service
- Commercial activity with an aim to improve general public service
- The total of the receipts shall not exceed 20 percent of total receipts in that financial year
Besides, the amount that goes into purchasing capital assets or repaying the loan which was used for the contribution to the Donation shall be considered as an exemption from tax under Section 12AA and Section 10(23C) as it’s also considered as a charitable purpose.
The religious purpose is not defined anywhere in the act, but wherever religion and faith are seen it becomes a “religious purpose”. It includes any kind of improvement, propagation, or advancement of religion and its tenets. The income of a religious trust or institution is entitled to be exempted from tax but it shall only apply to the public as mentioned under Section 11.
The mode by which donations can be transferred as mentioned under Section 80G of the Income Tax Act
This donation of charitable or religious purpose can only be transferred through:
- or via cash.
The maximum limit has been set for cash donations (prior to 2018) that the donations of more than INR10,000 in cash are not permissible. Any contribution made in kind such as food, clothing, etc. will not be allowed for deduction under this section.
From the year 2017-18 and onwards, it has been decided that any cash Donations which is over Rs 2,000 will not be exempted. The donations above the said amount should be made in any other mode of payment and not cash to qualify as a deduction under this provision.
The certain prescribed donations specified in Section 80G are eligible for deduction which can be either 50 percent or 100 percent as per the circumstance.
Donations eligible under Section 80G and 80GGA
Only donations made to certain prescribed institutions shall be eligible to be considered as a deduction under 80G of the Income Tax Act. This deduction can be claimed by any taxpayer – individuals, company, firm, or any other person.
Scientific Research or Rural Development as mentioned under Section 80GGA allows deductions for donations made towards scientific research or rural development. This deduction is permissible to all taxpayers except those who have an income(LOSS) derived from a business or profession.
Section 80 GGA mentions the list of permissible deduction as follows
- Paid for scientific research for development and improvement.
- Paid to any college or establishment for scientific research which shall be approved by the authority as mentioned under Section 35 (1)(ii) of Income Tax Act.
- Paid to an association for research and analysis for social and statistical sciences.
- Paid to a college or any other such entity which is to be used for the purpose of social science or statistical sciences for research and analysis which must be approved by the authority prescribed.
- Paid to an institute for rural development programs under Section 35 of Income-Tax Act.
- Paid towards an approved institute for training of personnel and guidance machinery for rural development program paid to an approved association or institution which undertakes training of person(s) of the rural program.
- Sum towards notified Rural Development Fund.
- Paid for fund for afforestation.
- Paid towards the program of National Poverty Eradication Fund.
These are the deductions that have been mentioned under Section 80GGA, if it has not been mentioned above, they will not be considered as a charitable deduction.
Taxability of these donations
Kinds of donations which shall be eligible for 100% deduction without qualifying limit
- Central Government National Defence Fund
- Prime Minister’s National Relief Fund
- National Foundation for Communal Harmony
- Towards an approved university/educational institution of National eminence
- Zila Saksharta Samiti of any specifically mentioned district under the authorised chairman of the Collector
- Medical relief Fund set up by a State Government specifically catering to the poor
- National Illness Assistance Fund
- National Blood Transfusion Council
- State Blood Transfusion Council
- National Trust for Welfare pertaining to Autism, Cerebral Palsy, Retardation, or any Multiple Disabilities
- National Sports Fund
- National Cultural Fund
- Fund for Technology Development and Tech Application
- National Children’s Fund
- Chief Minister’s Relief Fund
- Lieutenant Governor’s Relief Fund
- The Army Central Welfare Fund
- The Indian Naval Benevolent Fund
- The Air Force Central Welfare Fund
- Andhra Pradesh Cyclone Relief Fund, 1996
- The Maharashtra Chief Minister’s Relief Fund (October 1, 1993, to October 6, 1993)
- Chief Minister’s Earthquake Relief Fund at Maharashtra
- Fund set up by the State Government of Gujarat exclusively for earthquake relief.
- Any establishment which donates as per Section 80G(5C) applies for providing relief to the victims of the earthquake in Gujarat (contribution made during January 26, 2001, and September 30, 2001)
- Prime Minister’s Earthquake Relief Fund for Armenia
- Africa Fund-Public Contributions of India
- Swachh Bharat Kosh (applicable from FY 2014-15)
- Clean Ganga Fund (applicable from FY 2014-15)
- National Fund for Drug Abuse.
Donations eligible for 50% deduction without qualifying limit
- Jawaharlal Nehru Memorial Fund
- Prime Minister’s Drought Relief Fund
- Indira Gandhi Memorial Trust
- Rajiv Gandhi Foundation
Donations eligible for 100% deduction and 10% of adjusted gross total income
- Donations made to the government or any recognized local authority, institution, or association for the purpose of family planning.
- Donation made by a Company to the recognised association of Indian Olympic Association or any other recognized association, institution or establishment within India for the development of infrastructure for sports/ games in India, or towards the sponsorship of sports/games in India.
Donations eligible for 50% deduction subject to 10% of adjusted gross total income
- Any other fund or any establishment which satisfies the essentials or conditions mentioned in Section 80G(5) in the Income Tax Act.
- Government or any local authority, to be used for any religious or charitable purpose other than the purpose of promoting family planning.
- Any authority constituted within India to deal with and pertain to satisfy the needs for housing accommodations or the purpose of planning, development, or improvement of cities, towns, or villages or both.
- Any corporation referred to in Section 10(26BB) of the Income Tax Act for promotion of the interest of the minority in the community.
- For repairs or any renovations of any notified that is listed temples, mosques, gurudwaras, churchs, or other places.
Taxation of anonymous donations received by a trust shall be dealt in the following manner
If there has been an anonymous donation which means the identity of the donor is not available. A trust which is receiving donation shall keep the records of name, address and such other particulars to be necessarily maintained.
The anonymous donation received by any university, education institution, hospital, etc are taxed as an amount over 5% of the total donations received by the assessee or Rs.1,00,000/- is treated as income and on which tax is payable at 30% of the total.
Taxation of Hundis at the temple, church, etc.
In a temple or church, etc, there may be a Hundi for devotees to deposit their offerings. In this case, the identity of the donor is not identified. If such a temple or church is run by the religious trust, the above-mentioned provisions concerning anonymous donation are not applicable as the religious trusts are exempted as under the purview of Section 115BBC. If such a donation box is for specific purposes such as feeding poor people, feeding school children, then even for a charitable trust, it becomes a corpus fund and it is not taxable.
Payment of tax made on the EPF
There are specific situations where EPF withdrawal is taxable as mentioned down below:
Situation when the EPF is withdrawn under 5 years
- If EPF is withdrawn before completing 5 years of continuous service, TDS shall be deducted. Whenever the tenure of service is calculated, the calculation of 5 years of service, your service with the previous employer is also included.
- If EPF is transferred from an old employer to a new one and the total service is 5 years, then there will be no TDS deduction on the account.
Note: Calculate the exact 5 years, there is no grace if you are short by a few days.
The temporary employee for some part of 5 years
If an employee is hired for a temporary role when there is no EPF account created, then the roll is permanent and EPF is created by the employee. The temporary service years will not be counted with the permanent years. 5 years of continuous service after the creation of EPF is needed so that the TDS is not deducted.
When EPF is an unrecognized EPF
A fund which is not approved by the Commissioner of Income Tax (CIT) will be considered as an unrecognized provident fund. It should have been recognized by the commissioner of provident fund or any other formal authority.
The fund should be recognized by CIT to enjoy income tax benefits of a recognized provident fund (where withdrawals are exempt after 5 years) it must be approved by a commissioner of income tax. If you are a member of Unrecognised Provident Fund, withdrawals are taxed, whether or not there has been a completion of 5 years of service.
How are withdrawals taxed
- Employee’s contribution.
- Interest in your employee’s contribution.
- Employer’s contribution and interest on employer’s contribution.
a) Your contribution/Employee’s contribution – This is the amount which is contributed by the employee to EPF. This calculated portion of the withdrawal is not taxable. However, if deduction has been claimed under section 80C on an employee’s contribution in earlier years, the additional tax has to be paid as if 80C was not claimed by the employee in those years.
b) Interest on employee’s contribution – It will be eligible for taxation as it is considered as income from other sources.
c) Employer’s contribution and interest on the employer’s contribution – Employer’s contribution and interest are taxable. It is taxed under the head of the salary in your tax return.
When TDS is deducted on it, there is an entry under salary TDS in Form 26AS for it.
Note: Form 15G/Form 15H if submitted when the tax on your total income including EPF withdrawal is nil, TDS will not be deducted.
There are a few ways to avoid TDS on EPF such as transferring the old EPF to new employer’s account also when the amount is less than INR 50,000 then there shall be no TDS. Continuous service of 5 years is also a guarantee of no TDS on EPF. All donations, however, are not eligible for deductions under Section 80G but it is not limited to any person/assessee, it can be availed by anyone who donates. Donations can be claimed by any taxpayer, individual, association, or any other entity. which are prescribed shall be considered as deductions. Foreign donations and donations to political parties are not included in this section.
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