Revised discussion paper on the Direct Taxes Code (DTC) has suggested that donations be made taxable in the hands of the donor. At present, 50 per cent deduction is allowed on the donations made to religious institutions. So, if you donate Rs 1,001 to, say Tirumala Tirupati Devasthanams, you can claim a deduction of Rs 500 from your income. The first draft of DTC had proposed this deduction be available only if the funds are used for renovation or repair of a religious body.
In the revised paper, donors will get 50 per cent deduction on donations made to wholly charitable institutions, whereas any contributions made to wholly religious or even partially religious and partially charitable bodies will be fully taxed in the hands of the donor.
“If the donation is for charity, it will get deduction. India is a secular country. No deductions will be allowed for making donations for religious purposes,” said a finance ministry official.
The revised code is silent on allowing deductions on donations to any temple, mosque, gurudwara, church or any other place notified by the Centre to be of historic, archaeological or artistic importance.Online GST Certification Course by TaxGuru & MSME- Click here to Join
“Under the existing law, donations to all approved religious trusts get exemptions. Deductions are also allowed for donations made for repair and renovations of religious bodies of historical importance. I do not see any reason why the donations for repair and renovations should not be allowed any deduction,” said Sunil D Shah, partner at consultancy firm Deloitte.
“The proposal is in line with the government’s efforts to minimise deductions and exemptions. From a conceptual perspective, the government is donating half the money by allowing 50 per cent deduction (on donations at present). In the past, concerns have been raised over black money and money laundering with regard to donations to non-profit organisations,” said Amitabh Singh, tax partner at Ernst & Young.
The proposal may affect donations to many religious institutions to the extent that those who donate to these institutions for getting tax benefits may now go for alternate options.
To offset this loss, the second discussion paper has proposed to give tax exemptions to religious institutions, subject to some conditions. In the first draft of DTC, the finance ministry had proposed to tax all religious trusts on their income, except for those bodies registered under any central or state law.
The proposal was found “politically inappropriate” and opposed by many within and outside the government. It was argued that religious trusts are not taxed in most countries, and levying tax on donations in a country like India could have a negative impact.
The move to allow deduction only in case of donations to charitable institutions is also going to affect the way Indian companies and their promoters make donations.