Budget tax provisions haunt COVID-19 donations, relief as pandemic surges

Within days of the finance ministry drawing flak for Integrated Goods and Service Tax (IGST) provisions holding up COVID-19 relief materials donated to India by the global community at domestic airports, it has now come to the fore that several tax provisions contained in Budget 2020 are impacting the donations and relief measures amid the second wave. 

The provisions pertain to tax exemptions claimed by an assessee who makes a donation to a trust, institution, hospital, or a fund. 

A number of requisite compliance applications made by trusts and relief organisations post April 1 this year, as per amendments brought about by the Finance Act 2020, have been pending due to COVID-19 surge. Beginning April 1 this year, the amendments require organisations to file statement of receipts to the tax authorities to be able to issue exemption certificates to donors. This is essentially jeopardising relief and donations at a time when the nation is dependent on such resources as, for taxpayer, the exemption serves as an incentive for the purpose of donation. 

The Finance Act of 2020 made the deductions under the sections 80G and 80GGA conditional. The explanatory memorandum to the Finance Bill 2020, said, "Deduction under section 80G/ 80GGA to a donor shall be allowed only if a statement is furnished by the donee who shall be required to furnish a statement in respect of donations received and in the event of failure to do so, fee and penalty shall be levied."

"The Budget 2020 reintroduced the concept of renewal of registration under section 80G which earlier used to be granted for perpetuity to institutions, NGOs or funds. Under it the donor gets the tax benefits for the donation made to them," said Gaurav Mohan, CEO, AMRG and Associates -- a Chartered Accountant firm. 

The amendments were to come into effect on June 1 last year. However, the government extended the provisions to April 1 this year in September 2020. This has resulted in piling up of statements as well as applications for exemption certificates from the trusts with the IT department. 

The net result being that welfare trusts and other organisations involved in arranging relief materials are facing difficulty in raising funds from the donors for oxygen cylinders, concentrators as they lack power to issue tax exemption certificates to them. 

"Due to the ongoing pandemic and state lockdowns, income tax offices are closed or are working with minimal staff. The approvals for 80G are not being received by the institutions timely. This has led to confusion in the minds of donors on the status of exemptions. The charitable institutions are also not clear on where they stand on the tax treatment of the money received or to be received by them," Mohan added. 

Kamal Hak, President, Kashmiri Migrants Welfare Association told BusinessToday.In, "What is the urgency of such provisions at a time like this? We wanted to raise funds for procuring oxygen cylinders and oxygen concentrators and other COVID-19 relief material. But now tax rebate has been withdrawn till the time additional compliance is not done. How do we raise funds?"

"We are getting thousands of calls for help. We are following up on them and ensuring help reaches the needy. Leaving those aside, we have to deal with the filing of the statements and compliance related issues," Hak added. 

A possible way out would be extending the provision for the time being. "In the current challenging times, many trusts and NGOs are coming to the forefront to help in the fight against the COVID-19 pandemic. The government should make sure that procedures are intact to ease all such efforts. The government can defer the applicability of this rule or set up an express mechanism to provide provisional registrations. Any help to battle the pandemic shall be given a smooth path rather than entangling them in protocols," Mohan added. 

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