You may have heard of the recent amendments to the Income Tax Act 1961 for charitable organisations notified on 26th March 2021. Let's evaluate one of those amendments and how deeply it affects your fundraising.
The burden of compliance is now shifting on to charitable organisations. Apart from the re-validation of 12A and 80G (read more about it in the previous post here), a charitable organisation having an 80G approval needs to file a statement of donations in Form 10BD by 31st May in the immediately following financial year. This is effective from AY 2022-23 i.e. from 1st April 2021. Read more about the amendment of our previous post about Statement of Donations.
Why is this such a big deal? How does this impact the capacity to raise funds?
If we dive deeper, this has far-reaching effects, more than just the compliance angle. Let’s study a case and understand how things were pre-amendment and how they have changed post the amendment.
Assume Donor A is a regular contributor to XYZ Foundation. They donate a sum every year and love the impact that XYZ Foundation is creating. They are also happy they get a tax benefit along with the change they are helping to bring to society.
Figure 1 – pre-amendment (for contributions received up to 31st March 2021)
In figure 1 above, you can see that the process to avail the 80G deduction for a donor was quite simple. All that XYZ Foundation had to do was ensure a donation receipt was issued to Donor A with a valid 80G certificate details. While filing the income tax returns, the donor could easily avail 80G deduction for the donation given. XYZ Foundation had no other obligations to fulfill to ensure the donor was eligible to claim the benefit of 80G deduction.
Figure 2 – post-amendment (for contributions received from 1st April 2021)
Now, let us evaluate figure 2 above. It elaborates how the deduction is now only available if XYZ Foundation reports the correct information about Donor A to the Income Tax department via Form 10BD and then issues a certificate in Form 10BE certificate to Donor A. The deduction will be pre-filled in the donor's Income Tax Return, similar to how TDS is retrieved, provided the deductor has filed a TDS return with appropriate particulars.
Pre-amendment, for every contribution made by Donor A, they were easily able to avail 80G deduction while filing their income tax returns year on year. All they needed was a valid receipt from the XYZ Foundation. It was of no consequence whether XYZ Foundation maintained donor information or not. There was no direct way for the Income Tax Department to match the contributions captured in the books of XYZ Foundation and 80G deductions claimed by various donors.
Post-amendment, i.e. from 1st April 2021 (AY 2022-23), XYZ Foundation has to report all the donations received by them (which are eligible for 80G deduction) to the Income Tax Department in the notified Form 10BD. This form requires the following information: -
1. Donor Name
2. Donor Address
3. Donor Unique ID Number (PAN, Aadhaar, Tax Info Number, Passport, etc.)
4. Donation Type (whether corpus, specific grant, others)
5. Payment [mode whether cash, kind, electronic modes (including cheque), others]
6. Amount (in INR)
But still how does this affect your fundraising?
File Form 10BD -> Generate and give Form 10BE to the Donor -> Deduction available to the donor
Well, you need to file Form 10BD which would lead to the generation of Form 10BE. Form 10BE is a certificate that would ensure that the 80G deduction is available for the donor. Think of Form 10BE like a TDS certificate issued by the deducting organisation to the vendors. Without this, the benefit isn't passed on. If XYZ Foundation fails to generate this in time or has incorrect or no information about the donors, loyal donors may lose faith and trust in the objects XYZ Foundation. Even a first-time donor may reconsider giving again if claiming an 80G deduction is a hassle.
With crowdfunding on the rise, each organisation must take the onus to ensure that all the essential donor information is being captured and maintained to meeting compliance requirements, failing which the donor’s deduction could be jeopardised, which could affect the future fundraising capacity of the donee-institution.
Additionally, not collecting some of this information could also have adverse consequences as anonymous donations under section 115BBC.
There are penal provisions for not filing Form 10BD. Read about them in our previous post about Statement of Donations
This is a daunting task. Act now, gear up to meet this important compliance requirement. Whether you are a charitable organisation with an INR 20 lakh budget or an INR 200 crore budget, whether you are funded by corporates or individuals or a mix, whether you receive funds from a 'foreign source' or a domestic you will need to file a form 10BD. Don't lose out on funding because of compliance.
If you are looking for a solution to make this easier, you may want to consider using technology solutions. A software or a platform that will bring all your information in one place and help you effectively manage it. We all use excel sheets mostly, but when does that stop being efficient? Challenges like data redundancy, no access to data at all times, no ability to analyse data, dependency on one person to maintain that information, no ability to communicate with the donors, etc.
Want a simplified way to handle all of this? Visit ERP4Impact.com - #1 Donations Management Platform
ERP4Impact not only brings all your donor and donations data in one place but also has the following features:
· Dashboards/Reports (create a strong fundraising strategy backed by your data)
· automated receipting (and communicating them to donors via E-mails/WhatsApp instantly)
· grant management
· pledge management
· one-click import to Tally
· Form 10BD
· Reminders - never miss tranches and reports for grants and pledges
· Document management - crucial donor/donations/grant-related documents
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