New Compliances & Re-Approval Process under 80G (An Incisive Analysis)
CA. Naresh Kumar Kabra
The author is member of the Institute. He can be reached at eboard@icai.in.
The very objective of section 80G is to provide a motivation in the form of incentive (i.e., deduction) for the tax payers to contribute to charity. Charity may be defined as “an altruistic thought and action which comes together for the benefits of others”.
The Income-tax Act through Finance Act 2020 made it mandatory for all the NGOs (herein after referred as Institution) to obtain re-approval for 80G. However, due to COVID-19, this amendment was postponed to 31.03.2021. CBDT vide notification dated 26.03.2021, notified that, “The Income-tax (6th Amendment) Rules, 2021” for re-approval of 80G, which is to be ensured by 31.08.2021 (Original due date is 30.06.2021 which has extended vide circular No. 12 of 2021 dated 25.06.2021).
It will not be surprising if in future, the Department comes out with the concept of rating the Institutions, on the basis of their conduct and compliance. Therefore it is imperative for all concerned Institutions to strengthen their internal systems and compliance departments.
Through this article, an attempt has been made to present the discussion in a simple manner. This includes the key challenges to the new process of approval very specific to re-approval of existing 80G and compliances of return filing, which is divided into the following sections:
- Timeline of filing application under different situations.
- List of enclosures to be uploaded in the case of Re-approval of existing 80G.
- Filing of annual return of donation and issuance of certificate.
- Consequences in case of failure to file Form 10BD & 10BE.
- Information to be maintained by the Institution.
- Issues, which require clarity.
- Frequently Asked Questions (FAQs).
1. Timeline of Filing Application under Different Situations
The timeline of filing application, disposal thereof, the prescribed forms etc. w.r.t seeking re-approval and fresh approval of 80G which were brought by way of amending 1st Proviso to section 80G(5) and introducing new rule 18AB & substituting rule 11AA, is summarized as under:
| 1st Proviso to Sec 80G(5) | Situations | Timeline of Filing Application | Validity of Approval | Disposal of Application | Enquiry from Dept. | Type of Approval | Form to be Filed |
|---|---|---|---|---|---|---|---|
| (i) | Re-approval of existing Approval | Within three months from the 1st day of April, 2021 | 5 Years | 3 months* | No | Regular | 10A |
| (ii) | Regular Approval is due to expire | At least six months prior to expiry of the said period (i.e., 5 Years) | 5 Years | 6 months* | Yes | Regular | 10AB |
| (iii) | Provisional Approval is due to expire | At least six months prior to expiry of period of the provisional approval (i.e., 3 years) or within six months of commencement of its activities, whichever is earlier | 5 Years | 6 months* | Yes | Regular | 10AB |
| (iv) | In any other case (Provisional Approval) | At least one month prior to the commencement of the previous year relevant to the A.Y. from which the said approval is sought | 3 Years | 1 month* | No | Provisional | 10A |
*Note: Disposal timelines are calculated from the end of the month in which application was received.
Major Amendment – Abolition of Perpetuity
80G approval will now be granted for a period of 5 years, requiring periodic renewals. The concept of perpetual registration has been done away with.
Immediate Provisional Approval
Provisional approval of 80G will now be granted immediately after incorporation without detailed enquiry, enabling new institutions to receive donations and commence operational activities immediately.
2. List of Enclosures to be Uploaded for Re-Approval of Existing 80G
- Copy of Instrument: Trust Deed / Society Bye-Laws / Memorandum of Association (MOA) and Articles of Association (AOA).
- Other Creation Evidence: Copy of other document evidencing creation i.e., Revenue Records, Assessment Order u/s 143(3) etc., if the Institution is not created under an instrument.
- Registration Certificate: Copy of Registration with Registrar of Public Trusts / Societies / Companies.
- FCRA Registration: Copy of Foreign Contribution Regulation Act (FCRA) registration (if applicable).
- Existing 80G Order: Copy of existing approval order u/s 80G.
- Annual Accounts: Copy of Last 3 Years’ Annual Accounts, only if, the Income-tax Return (ITR) for A.Y. 2020-21 has not been filed.
Mandatory Requirement: All the uploaded enclosures must be self-certified.
3. Filing of Annual Return of Donation and Issuance of Certificate
The concept of filing of Annual Returns has been introduced for declaring various types of donations received by the Institution:
Key Statutory Provisions:
- Form 10BD [Section 80G(5)(viii)]: Annual Return is to be filed electronically in Form 10BD for the donations received in F.Y. beginning from 2021-22.
- Form 10BE [Section 80G(5)(ix)]: Donee Institution has to issue a donation certificate to each donor in Form 10BE.
- Statutory Due Date [Rule 18AB(9)]: Both forms have to be furnished on or before 31st May, immediately following the respective financial year.
- Pre-Condition for Donor Deduction [Explanation 2A of Section 80G]: Related details w.r.t Donor and Donee will be auto-populated and reflected in Donor’s ITR, which is a pre-condition for the donor to claim deduction u/s 80G.
4. Consequences in Case of Failure to File Form 10BD & 10BE
Late Filing Fee u/s 234G
A fee of Rs. 200 per day to be paid for every day during which the failure continues.
Penalty u/s 271K
Assessing Officer may direct payment of a penalty ranging from Rs. 10,000 to Rs. 1,00,000.
Operational Bottleneck & Practical Advice
The Problem: The due date of filing Annual Return (Form 10BD) and issuance of certificate (Form 10BE) are both on or before 31st May. It is highly impractical to ensure both compliances simultaneously on the last day. The Department should ideally allow a gap, similar to TDS returns and Form 16/16A generation.
Practical Advice: To remain strictly compliant, the Institution must file Form 10BD at least two days prior to 31st May, ensuring sufficient time to generate, verify, and issue Form 10BE certificates to all donors within the statutory due date.
5. Information to be Maintained by the Institution
From 01.04.2021, the Institution must capture and maintain comprehensive donor-wise and donation-wise records:
- (a) Name of the Donor
- (b) Unique Identification Number (UIN): PAN or AADHAAR. If unavailable, any of the following valid documents:
- Tax Payer Identification of country of residence
- Passport Number
- Elector’s Photo Identity Card (Voter ID)
- Driving License
- Ration Card
- (c) Address of the Donor
- (d) Type of Donation: Corpus / Specific Grant / Others
- (e) Mode of Receipt: Cash / Kind / Electronic Modes / Others
- (f) Amount of Donation
- (g) Deductibility Section: Section 80G or Section 35(1) (Statistical / Social / Scientific Research)
Accounting System Re-Engineering:
Institutions must customize their chart of accounts and ERP frameworks to capture nature of donation, donor UIN, and mode of receipt at the point of voucher entry. Due to auto-population into donor ITRs, erroneous data will deny tax deduction to the donor, triggering disputes, return revisions, and inefficient resource consumption.
6. Issues Which Require Clarity w.r.t Practical Challenges
Issue 1: Can NIL Return be filed in Form 10BD?
Author’s Opinion: Nothing is currently prescribed in the law regarding filing of NIL returns. Since Form 10BD was required for the first time by 31.05.2022, clarification from the Department is necessary.
Issue 2: Can Institutions receive 80G donations after getting provisional approval? What if regular approval is subsequently denied?
Provisionally approved institutions must apply for regular approval at least 6 months prior to expiry of provisional tenure or within 6 months of commencing activities, whichever is earlier. If regular approval is denied, will the donor lose deduction on donations made in the interim?
Author’s Opinion: To avoid future litigation and disallowance for donors, institutions should ideally avoid accepting donations during provisional registration until explicit clarification is issued.
Issue 3: For existing Institutions holding 80G approval as on 31.03.2021, can they accept donations before the formal re-approval order is passed?
Unlike Section 12AA(5) which enacted an express “Sunset Clause” stating “Nothing contained in this section shall apply on or after the 1st day of April, 2021”, no such sunset clause was enacted for Section 80G.
Author’s Opinion: Institutions can legally continue receiving donations. The existing 80G approval does not become ineffective, and the Department is duty-bound to re-approve the registration for 5 years upon filing Form 10A within prescribed time.
Issue 4: What is the status of 80G deduction if 12AB registration gets cancelled subsequently?
Author’s Opinion: Denying donor deduction retrospectively is harsh and inequitable. As established under Explanation to Section 35(1) and consistent judicial rulings, once a donor makes a bona fide donation to an institution holding a valid certificate on the date of donation, subsequent revocation of donee registration cannot take away the donor’s vested tax deduction.
Issue 5: Is 80G Return applicable to Religious Institutions?
Author’s Opinion: Under Explanation 3 to Section 80G, charitable purposes exclude entities wholly or substantially religious. Hence, religious institutions not approved u/s 80G are exempt from filing Form 10BD. However, all non-80G trusts must maintain complete donor KYC to prevent anonymous donations from being taxed at 30% under Section 115BBC.
Issue 6: Implications if a Trust is not a “Public Charitable Trust” under State Laws
Section 80G(5) mandates that a trust must be constituted as a “Public Charitable Trust”. India has no central enactment for public trusts (Indian Trusts Act 1882 governs private trusts). Where state governing bodies exist (such as Devasthan Vibhag in Rajasthan, or Charity Commissioner in Maharashtra, Gujarat, and MP), trusts must register with state regulators to prevent rejection or litigation under Section 80G.
Issue 7: What if no activities are carried on by a provisionally registered institution for 3 years?
Author’s Opinion: The statute requires regular application within 6 months of commencement or 6 months prior to expiry. If no activities take place, specific administrative clarification is needed regarding the eligibility to seek regular 5-year registration.
Issue 8: Whether certificates must be issued for donations in kind or cash donations exceeding Rs. 2,000?
Author’s Opinion: While cash donations exceeding Rs. 2,000 are not eligible for 80G deduction in donor hands, and donations in kind do not qualify for deduction under Rule 11AA/Section 80G, the reporting format requires complete records. Clarification is expected before return filings commence.
7. Frequently Asked Questions (FAQs)
a. Can a Return filed through Form 10BD be revised?
Answer: Yes. However, the exact technical procedure to submit a correction statement for rectification of errors or adding/updating entries is yet to be laid down on the e-filing portal.
b. How should donation details required in Form 10BD be aggregated?
Answer: Multiple donations from different donors can be uploaded in a single consolidated return. However, multiple donations received from a single donor of the identical nature, type, and deductibility category can be aggregated together into a single line-item in Form 10BD.
c. Will non-delivery of each certificate in Form 10BE to donors result in separate fine and penalty?
Answer: There is no statutory clarity on multiple penalties. Institutions must download all generated Form 10BE certificates and dispatch them via email or speed post, documenting postal proofs and transmission logs to demonstrate bona fide compliance.
d. How to disclose donations in case of joint donors?
Answer: Report the donation as per the proportion declared by the joint donors. If no proportion is declared, disclose the amount in equal 50:50 proportions between the joint donors.
e. Signing issue – Digital Signature (DSC) vs Electronic Verification Code (EVC)?
Answer: Form 10A / 10AB must be verified using DSC if the ITR of the preceding financial year was submitted under DSC. In other cases, EVC is permitted. The DSC/EVC must belong to the authorized signatory through whom the last ITR was filed.
f. What about applications pending as on 31st March, 2021?
Answer: Under Section 80G(5E), all applications pending as on 31.03.2021 are deemed to be filed for provisional approval under clause (iv) of 1st proviso on 01.04.2021, and the order granting provisional approval should be passed within one month from the end of the month, i.e., by 31st May 2021.
g. Which approval number is to be mentioned in Form 10A for re-approval?
Answer: The original approval number mentioned in the first order granting 80G approval must be entered, not subsequent renewal order numbers.
h. What is the difference between Specific Grant and Corpus Donations?
Answer: In project or specific grants, the donor imposes terms on utilization and mandates that unspent funds must be refunded. Because of the refund obligation, it cannot be categorized as a permanent capital corpus donation.
i. Can anonymous donations be received by an Institution?
Answer: Religious trusts are exempt from Section 115BBC taxation. For charitable institutions, anonymous donations exceeding statutory limits are taxed at a flat rate of 30% under Section 115BBC. Maintaining donor identity records is mandatory.
Beginning of a New Era of Charitable Institutions Post 01.04.2021
This new process will catalyse the proceedings for the Income-tax Department. Apart from this, it shall promote charitable activities, because now, there is the concept of provisional approval and because of the concept of renewal every 5 years, there will be no roving inquiry in the affairs of the Institutions on day-to-day basis. Due to this, they will be in a better position to run their activities in a smoother manner. Due to these welcome amendments in the law, the ultimate purpose of giving income-tax exemption benefits will be achieved at the best and charity will be done in its true and best sense.