Tax benefits for NGO donations under Sec 35AC and Sec 80GGA

As i am working on my goal of setting up my first NGO this year, there came the realization that i would also need some funds to run this NGO :). Well, do not worry, i will not bore you with my NGO details on this post. The purpose of this post is to help me collect funds :) just kidding..it is actually for you to know the tax benefits you can avail when you donate money to any NGO. There are different IT Act sections that apply if you are salaried class or if you are running a business.

Introduction

An NGO can avail income tax exemption by getting itself registered and complying with certain other formalities. The Income Tax Act has certain provisions which offer tax benefits to the "donors". All NGOs should avail the advantage of these provisions to attract potential donors. Section 35AC is one of such sections.

Registration under Sec 35AC

The Central Government approves certain NGOs and notifies them as eligible for project or schemes for the purposes of section 35AC. If an NGO succeeds in getting such an approval for its projects then it stands a very good chance of mobilizing funds from the corporate and the business sector. Business houses making contribution to such approved projects are allowed the benefits of deducting such contribution as expenditure.

National Committee

- The Central Government has constituted a National Committee to identify projects and schemes to be notified under section 35AC, such committee normally consists of eminent persons. 

- All NGOs are entitled to apply to the National Committee to get its projects or schemes approved. 

- The National Committee may recommend or reject the project but when the approval is recommended then it is for a period of maximum 3 years and it could be further extended if the National Committee is satisfied with the performance during the period. 

- Since the approval under section 35(AC) is not permanent in nature, business houses making donations for the purpose of section 35AC, should be careful that the donee organization continues to enjoy approval u/s 35AC

How to apply to National Committee in India?

The application for approval by the National Committee should be made to the Secretary, National Committee for Promotion of Social & Economic Welfare, Dept. of Revenue, Govt. of India, North Block, New Delhi - 110001, India.

Certificate to be issued to the Donor

1. All approved NGOs are required to issue a certificate to the donor for all contributions & receipts under section 35AC. The certificate is to be issued in Form 58A.

2. This certificate will enable the donor to claim exemption from its taxable income.

3. Further, the NGOs should also send an Annual Report to the National Committee indicating the progress of the work relating to the project/scheme.

4. It should also send the details on the contributions as well as the contributors & their addresses.

5. Such Annual Report should reach the National Committee by 30th June, following the financial year in which the amount is received.

Contribution under section 80GGA

Section 35AC is available to assessees who have income from the head ‘business’ or ‘profession’. Therefore, for the assessees who do do not have income from business or profession(e.g. earn income only from salary), section 80GGA provides for deduction on donations made to eligible projects under section 35AC.

100 per cent deduction is available under section 80GGA

Section 80GGA covers any sum paid by the assessee in the previous year to:

(a) a university, college or other institution which undertakes scientific research. The university/college/institution should be in the list notified by the Income Tax department.

(b) an association or institution, which runs programmes for rural development.

(c) a public sector company or a local authority or to an association or institution approved by the National Committee, for carrying out any eligible project or scheme.

(d) a rural development fund set up and notified by the Central Government.

(e) the National Urban Poverty Eradication Fund set up and notified by the Central Government.

So, get ready to donate....and save money on taxes.

Cheers

Manoj Arora