Statement and Certificate of Donations

• Taxation
• ||
• February 10, 2022

Before introducing form 10BD under the income tax rules, there was no mechanism to verify or counter-check the deductions for donations asserted by the assessee according to section 80G and other sections. Therefore, the deduction was authorized by the income-tax department based on the assessee’s claim and preferably based on a copy of the donation receipt. Introducing this new form aims to have more accountability and transparency when verifying claimed deductions and donations received by charities, thereby eliminating false deduction claims and s misuse of the provisions by stakeholders.

By introducing the form 10BD and issuance of a certificate in form 10BE, the tax authority will solve two problems at once, namely, the correct declaration of donations by organizations and the rightful claim of deduction by the donors. This can be done by securing that the donation made by the assessee appears in their form 26AS and auto-population of the same when the donor files an income tax return (ITR). This is achieved through donations reported by the donation receiving organization on the ITR form 7 under the “voluntary donations” schedule.

The objective of introducing this rule
The objective of the introduction of the form 10BD, i.e., statement of donation, is to ensure accountability transparency, reduce inaccurate donation claims, put an end to misreporting of donations by the entities that have obtained approval u/s 80G(5) and u/s 35(1) of the Income Tax Act, 1961. (The bodies under the above sections could be research alliances, universities, colleges, institutions, charitable trusts, section 8 companies, etc.). This will also ensure that donors’ incorrect or false donation claims are eliminated. In this sense, the Central Board of Direct Taxes (CBDT) notified form 10BD & form 10BE vide notification no. 19/2021, dated March 26, 2021.

Effective date and applicability of the rule
The notification is effective from April 01, 2021. This new rule 18AB applies to all those entities who have approved u/s 80G and u/s 35(1) of the Income Tax Act, 1961. Filing of statement of donations (in form 10BD) is compulsory. A statement of donations for the financial year 2021-22 is needed to be filed by May 31, 2022. 

Procedure of filing statement of donations and information to be accumulated
Statement of donation (in form 10BD) is required to be filed by donation acquiring organizations electronically by using the digital signature of an individual authorized to sign the return of income or needs to be filed by e-verification code (EVC). This statement has to be filed hardly once in a financial year. The deadline for filing this statement for 2021-22 is 31^st May 2022. These entities have to obtain all the requisite information from donors as and when a donation is obtained and maintains a list of donations.

The list of donations will be helpful when filing a statement of donations. The details that should be collected from donors are as follows:

After filing a statement of donations in form 10BD, the reporting entity should download and issue a certificate of donations in form 10BE, which contains particulars of reporting entity like PAN and name of the entity, address of entity acquiring the donation, approval numbers u/s 80G and 35(1) along with particulars of donations and donor. For the financial year, 2021-22 form 10BE will be issued by 31^st May 2022. In case of any inadvertent fallacy or mistakes in form 10BE, then there are provisions to rectify the fallacies or mistakes by filing a correction form (filing form 10BD again with corrections). Hence, additions, deletions or modifications are possible.

In the event where donations are obtained from more than one individual, say husband and wife both contribute jointly, in such cases, PAN  and other details of husband and wife need to be taken. Donation needs to be attributed to both in the ratio specified by donors, where no proportion is defined by the donors; in such cases, the donation is attributable equally.

The task of authorities in compliance of procedure
According to the notification, the principal director general of income tax (systems) or director general of income tax (systems) have been vested with the authority for lying down:

• Standards and procedure for furnishing and verifying the details to be filled in form 10BD.
• Procedure for rectifying the details in the statement and submitting correction statement in form 10BD.
• Procedure, format and standards to generate and download the certificates in form 10BE.

According to the notification, the target date for filing form 10BD and the target date for the issue of the certificate of donation are one and the same. One may anticipate some changes in this respect.

Consequences of non-filing of form 10BD
The reporting entity is mandated to follow the filing of form 10BD, and failure to follow will attract a fee of Rs. 200 per day according to recently incorporated section 234G.

Aloof from the fee for delay in furnishing statement of donations in form 10BD, failing to file such statement will also allure penalty u/s 271K, which must not be less than Rs. 10,000 and which may extend up to Rs. 1,00,000. From the donor’s point of view, obtaining a donation receipt is not sufficient. Still, it is crucial to get a donation certificate in Form 10BE after the end of the financial year. The role of organizations receiving donations is essential here, as it is necessary to issue a donation certificate to all the donors to claim the deduction.

At AJSH, we assist our clients with various income tax compliances, including income tax assessments, ITR filings, tax advisory and other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about the statement and certificate of donations, kindly contact us.