In the unprecedented time of COVID-19 pandemic, the Corporates are contributing open hearted to help in this global crisis. The contributions can be in the form of direct funding to the NGOs involved in supporting the cause or donation to “Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund” (PM CARES Fund)’. Companies are donating money to PM CARES Fund in consolidated manner where they are encouraging their employees also to donate for this social cause. In many Government Organization, it has been made mandatory to contribute part of their salary to the PM CARES Fund.
There are two major benefits which are available under the Income Tax Act, 1961 and Companies Act, 2013, in respect of the consolidated amount of donation i.e.
1. U/s 80G, 100% deduction is available to the employees and employers on the part of their contribution.
2. The amount contributed by the employers is eligible for computation of contribution under ‘Company Social Responsibility (‘CSR’) Fund.
As an Employer, the corporates are required to take care of the following aspects:
1. CBDT vide Instruction No. 178/7/2020-ITA-I, Dated April 9, 2020 has clarified the following points:
– Donations made to the PM CARES Fund are eligible for deduction under Section 80G of the Income Tax Act, 1961.
– The employer will provide the deduction u/s 80G in respect of the employee contributions by allowing the amount in Form 16.
– 100% deduction u/s 80G of the contribution amount is available in respect of the donation to PM CARES Fund. The condition of threshold limit of 10% of Gross Total Income is not applicable.
2. The Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 has extended the time limit in respect of the above-mentioned matter as follows:
(i) Quarterly salary withholding statement (Form 24Q) for the fourth quarter of FY 2019-20 from May 31, 2020 to June 30, 2020.
(ii) Form 16 for tax year 2019-20 to employees from June 15, 2020 to June 30, 2020;
(iii) June 30, 2020 for making donations to claim tax deduction for the FY 2019-20.
3. Employer can consolidate donations to the PM CARES Fund on behalf of employees till June 30, 2020 and consider such donations while issuing Form 16 to the employees for FY 2019-20.
4. Since, in most cases, the employers would have already deducted tax from salary till March 2020, without considering the benefit of donation to be made till June 30, 2020, it will result in refund of excess withholding to the employees which the employees can set off against their tax liability on other incomes earned by them and/or claim refund while filing return of income.
5. If an employee claims benefit of lower tax rate in any tax year from FY 2020-21, as per the new section inserted by Finance Act, 2020 with effect from FY 2020-21, then the benefit of deduction of donation to the PM CARES Fund will not be available.
6. Earlier, Vide Circular No. 2/2005 dated Jan 12, 2005, the Central Board of Direct Taxes (CBDT) had clarified in the past that, in cases where employees make donations to the Prime Minister’s National Relief Fund, the Chief Minister’s Relief Fund or the Lieutenant Governor’s Relief Fund through their respective employers, the claim in respect of such donations will be admissible on the basis of the certificate issued by the employer in this behalf. However, in the current scenario, by issuing Form 16, the employer can comply by his liability and no separate certificate is required to be issued.