The Union Budget for Financial Year 2020-21[1], presented by the Finance Minister Nirmala Sitharaman on 1st February 2020, has some significant takeaways for NGOs and other charitable organizations. Here is an overview of these changes:
- All NGOs need to renew their 80G/12A/10(23C) certifications by June 30, 2021:
- Existing 80G/12A/10(23C) certifications for all NGOs will need to be renewed and the renewal application needs to be submitted by June 30, 2021 . (Pg. 10, 19, The Finance Bill, 2020[1], Press Release[4])
- New certifications will be valid for a maximum of five years and will need to be renewed again after this period (as opposed to indefinite validity earlier) (Pg. 20, The Finance Bill, 2020[1])
- The applications will also be used to assess the genuineness of the activities of the charitable organisation or NGO.
- The renewal will need to be applied for, at least 6 months before expiration of the certification.
- New organisations who seek the above certifications will get a provisional registration for three years the first time, after which it can be renewed for five years.
- Section 80G allows Income Tax deductions for an individual in respect of donations to certain charitable institutions that hold such valid certification whereas Section 12A and 10(23C) allows Income Tax exemptions for NGOs, charitable organisations, educational institutions etc. under their specific conditions respectively [3].
- Exemption allowed only under one of 10(23C) or 12AB, not both:
- An NGO can avail exemption only under either one of the two sections: Section 10(23C) or Section 12AB, as opposed to being able to avail both the exemptions, earlier (Amendment of Section 11, Pg 12 & 13, The Finance Bill, 2020[1])
- Section 12AB is the new section inserted in the Income Tax Act with procedure of fresh registration for NGOs described above. .
- List of donations and donors to be submitted to the Income Tax Office:
- All NGOs with 80G certification are required to submit a list of donors and donations made, to the Income Tax Office , as well as provide a corresponding certificate of donation to the donor (Pg 19, The Finance Bill, 2020[1]).
- Claims of deductions by the donors would be honoured by the Income Tax Office based on this list provided by the NGOs. The donee's information would also be pre-filled in the taxpayer's return based on the above information. (Pg 38-39, Budget Speech 2020,[2]).
- The above applies to claims under Section 80GGA as well.
- Electronic registration & Unique Registration number (URN):
- NGOs' registration process is proposed to be made fully electronic and a unique registration number (URN) will be issued to all new and existing charity institutions to centralise the process (Pg 39, Budget Speech 2020,[2])
- Cash donations limited to Rs. 2000 under 80GGA:
- In the section 80GGA of the Income-tax Act, the upper limit of cash donation has been reduced to Rs. 2000/ - from Rs. 10,000/-. (Pg. 20, Pg. 75 ,The Finance Bill, 2020[1])
- Note: Similar restriction was levied for Section 80G, from Financial Year 2017-18 onwards, where cash donations of more than Rs 2,000 were not allowed as deduction under Section 80G.
- Section 80GGA refers to deduction for donations made towards scientific research or rural development [3].
- Audit & IT return:
- The audit report of NGOs needs to be submitted one month before the due date to file the Income Tax return , as opposed to no time limit specified for the audit report earlier (Pg 11, Pg 66, The Finance Bill, 2020[1]). Also, the due date to file the Income Tax return has been extended to 31st October which was earlier 30th September (Pg. 27, The Finance Bill, 2020[1])
- The audit report has to be furnished by those NGOs or institutions whose total income exceeds the maximum amount which is not chargeable to tax in any previous year. The accounts for that year need to be audited by an accountant and submitted by 30th September. .
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Disclaimer:
This article has been published by Give Discover which is an information platform providing browsable and searchable information about social impact in India. The purpose of the article is to simplify information from the Finance Bill-2020, The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 and other related and available information. The above article is no substitute for legal interpretation of the Bill or Act. A legal advice on these matters is advised and recommended. Give Discover does not take any responsibility for any loss or damage caused to any organization or individual in any manner, due to any step taken, directly or indirectly, on the basis of the above article.
