Section 35AC of the Income Tax Act 1961 allows for tax deductions for eligible companies or organisations that undertake projects or schemes for public welfare. This section was introduced to encourage private sector companies and organisations to invest in public welfare measures and contribute to the development of the country.
Under this section, contributions made by any assessee to an approved project or scheme are eligible for deductions. Approved projects or schemes must be notified by the Central Government in the official Gazette, and must be approved by the National Committee for Promotion of Social and Economic Welfare.
Tax deduction allowed under Section 35AC are as follows:
1. Expenditure incurred in creating or providing infrastructure for any public welfare scheme or project are eligible for deductions up to 125% of the amount spent for the scheme or project.
2. The total tax deduction allowed in any financial year is capped at 10% of the net profits of the assessee for the same financial year.
3. Tax deduction is not allowed if the assessee fails to apply for approval from the National Committee within 6 months of incurring any expenditure for the welfare project or scheme.
4. The assessee must ensure that the project/scheme to which it contributes has no heavy power or fuel consumption and should be efficient in its utilisation of material, labour and its methods of operation.
5. The section also applies to contributions made by a corporate house to social welfare organisations such as schools and charitable institutions.
6. Contributions made to improve the quality of education, health, nutrition and family welfare, water supply, environment enhancement, beautification of cities and towns, etc, which are undertaken by organisations approved under section 10(23C) are also eligible for deductions under this section.
Section 35AC has had a positive impact on society, as it has allowed for an easier and less complicated deduction for persons and companies that undertake measures for public welfare. The section has provided an incentive for companies to actively engage in such activities and help improve the quality of life in our country.
In summary, Section 35AC of the Income Tax Act 1961 provides an incentive for companies and organisations to contribute to public welfare projects and schemes. It allows for tax deductions of 125% of the amount spent, subject to a maximum of 10% of the net profits of the company. This has allowed companies to contribute to social welfare projects and schemes, as it provides an easy and more efficient means of deduction as compared to other sections of the tax act. Section 35AC has been highly beneficial to companies and organisations, as well as to the general public, as it has improved the quality of life in our country.
Author Bio
Kindly confirm if the deductions under Sec 35AC is still available, in finance act 2016 was it not amended to restrict the deduction, its not available since 1 April 2018.
CA Shaji Nair
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