Before initiating our discussion, its required to assume that charitable or religious institution covered in this article are either registered under the provisions of section 12AA of the Income Tax Act 1961 or otherwise entitled to claim exemption as per the provisions of section 10(23C).
Types of Donation:
Contrary to a common person or institution, a charitable or religious institution has substantial source of receipts in form of donations. Such donations may be corpus or voluntary. The Income Tax Law provides blanket exemption to corpus contributions whereas it requires application of voluntary contributions in general for charitable or religious purposes.
Donations can also be bifurcated into anonymous and non-anonymous form i.e. a donation where donor identity is available and disclosure thereof, if required by the authorities is not prohibited can be termed non-anonymous donation whereas the other form in which anonymity of donor particulars’ is maintained are called anonymous donation.
Taxation of Anonymous Donation
The taxability of anonymous donation is covered by the provisions of section 115BBC of the Income Tax Act 1961 attracting tax liability @ 30% depending on the status of trust being charitable or religious i.e. if a trust is a religious trust it need not pay tax per above section 115BBC whereas if it is a charitable trust the anonymous donations are taxable @30% (subject certain limited exemption). Such taxation form is applicable since assessment year 2007-08.
Taxation of Non-Anonymous Donation
Any kind of non-anonymous donations received by a trust can be claimed exempt subject to the provisions of section 11 & 12 of the Income Tax Act 1961. In other words, a trust may accumulate 15% of such donations and required to apply remaining 85% for public charitable or public religious purposes. The law further provided exemption from tax if the conditions specified for deemed application or accumulation are duly satisfied.
It’s important to note that anonymous donations received by religious trust which are not taxable as per section 115BBC are dealt at par level of non-anonymous donations for taxation of religious trusts.
Whether cash donations are anonymous donations:
Where the donor identity is available and can be disclosed, if required, even if such donation is received in cash it can’t be called as anonymous donation. Therefore, treating cash donations as anonymous is not prima-facie correct proposition.
Section 80G and Charitable Trust:
It is only a charitable trust who can get registered under section 80G and provide receipts to the donors making them eligible to claim deduction under section 80G (in computation of donor’s total income). Thus, religious trusts are not eligible for section 80G registration.
The Finance Act 2017 has amended the provisions of section 80G (5D) wef AY 2018-19 providing that “No deductions shall be allowed under this section in respect of donation of any sum exceeding two thousand rupees unless such sum is paid by any mode other than cash.” This limit before revision was rupees ten thousand. Thus a person donating more than Rs. 2,000/- in cash on or after 01.04.2017 shall not be entitled to claim benefit of such deduction under section 80G.
Therefore, in case a charitable trust registered for the purposes of section 80G while receiving cash donations above Rs. 2,000 shall not be able to write on the receipt of such amount that “amount donated shall be eligible to claim section 80G benefit”. But the taxation of such donation in the hands of recipient charitable trust would depend on this fact even that whether donor identity is available with the trust or not. If donor identity is available the cash donations above Rs. 2,000/- can’t be made taxable in the hands of the charitable trust as such. Yes, in case the cash donations are such where donor identity is absent the provisions of section 115BBC (as discussed above) shall be applicable.
To summarise receipt of cash donations above Rs. 2,000 by a charitable trust is still not prohibited.
Cash Donations received by a Religious Trust:
Undoubtly, the above paras explain that a religious trust is not entitled to issue section 80G receipts but they do accept donations in cash. The donations received in cash by religious institution even in cash exceeding Rs. 2,000/- are not prohibited even after the amendment discussed above. Even where cash donations received are anonymous in nature the religious trust should not be taxable @ 30% (except when section 115BBC (2)(b) applies).
Insertion of section 269ST by the Finance Act 2017 and Cash Donations:
The Finance Act 2017 has inserted a new section 269ST in the Income Tax Law to restrict a person receiving Rs. 2 lakh or more in cash from a person in aggregate in a day or in respect of a single transaction or in respect of transactions relating to one even or occasion from a person. The contravention of such provision shall attract penalty under new section 271DA i.e. equivalent to the amount so received by the recipient.
Therefore, in case of receipt of cash donations by a trust (may be charitable or religious) if donations are found received in contravention of section 269ST then relevant trust shall be liable to attract penal consequences. Thus, a trust must be cautions that cash donations received by it should not fall under the ambit of section 269ST detailed above.
For example, a temple trust receiving cash amount of Rs. 3,50,000 from a donor towards ‘Pran-Pratishta’ or ‘Prasadi’ or ‘Pooja’ program can be said to be non-compliant for the purposes of section 269ST.
In such circumstances, it will be a herculean task for a trust to established that none of the total cash donations received during a particular financial year are in contravention of the provisions of section 269ST.
Accepting cash donations as such is not prohibited but its bifurcation into an anonymous or non-anonymous form as well as itself not attracting the provisions of section 269ST shall prove to be challenging for public charitable and public religious trust in the time to come.