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Deduction for Collective Donation under section 80G to Employees through Employer

deduction-for-collective-donation-under-section-80g-to-employees-through-employer

It is not uncommon to make group donation by the employees of an organization to any fund etc through their employer. Group donation is where employees donate to relief funds for a noble cause during a disaster through their employers and the employer after collecting the money from the employees donates the same to the donee/fund. Employer consolidates all donation and give single cheque to the Fund with Employer PAN but shows donation as deduction u/s 80G in the employee's Form 16.


Typically, this is done by deducting certain money from the salary of the employees. Since the donation is being given by the employees, they are entitled to claiming deduction under section 80G of the Income Tax Act, 1961. However, since the donation is paid by the employer through employers bank account and cheque, the donation receipt is issued in the name of the employer. Under such circumstances, there needs a procedure to be followed so that the deduction is available to the employees concerned.


In this article, the procedure of claiming the deduction under section 80G for donation collected from the employees by the employer and deposit of the collective amount to the relief fund as a donation to the individual employees is discussed.

Recently, Prime Minister Shri Narendra Modi appealed the public and the citizens to donate generously to the newly launched PM CARES Fund to provide relief to those affected by any kind of emergency or distress situation which is more relevant in today's scenario when the country is fighting against COVID-19 or coronavirus.

It is not the first time that the prime minister of the country made any appeal to the public for any contribution. In the past, the then Prime Minister Dr Manmohan Singh in 2013 appealed to the public for generous donations to support the victims who have suffered “extensive devastation" caused due to cloudbursts and floods in the state of Uttarakhand and a large number of people have died and property worth crores of rupees had been damaged.

At that time, Dr Singh said, “At this moment, affected people need our help to tide over the calamity that has fallen upon them, to survive and to rebuild their lives. I request all citizens of India to stand with our distressed fellow countrymen, and actively participate in the national effort to support them at this difficult time,"

He appealed to all citizens to donate generously to the Prime Minister’s National Relief Fund (PMNRF).

Prime Minister’s National Relief Fund (PMNRF) was established by the then Prime Minister, Pt. Jawaharlal Nehru in January, 1948 much before the Indian Parliament was born and even before the Indian Constitution came into force.

Returning to the topic, in case the donation is given to the PMNRF of PM CARES FUND by the employer after collecting money from the employees by way of deduction from the salary of the employees, the individuals have the right to claim the deduction under section 80G for such donation.

The issue is important to discuss because to claim the deduction under section 80G the following documents are required –

Documentation Required for Claiming deduction under section 80G

Receipt from donee:  For claiming deduction under Section 80G, a receipt issued by the donee is a must. The receipt must contain the name, address & PAN of the donee, the name, address and PAN of the donor, the amount donated. 

Registration No. of the donee: The receipt must contain the Registration number issued by the Income Tax Department under Section 80G.

Deduction under section 80G if donation deducted from Salary and donation receipt or certificate is issued in the name of employer

In case of group donation through the employer, the donor is the employees and the donee is the recipient of the fund. But since the donation is received from the employer, donor issues the receipt in the name of the employer.

To overcome this situation, the CBDT has issued a Circular No. 02/2005 on 12-01-2005 and provided a guideline for the employer so that the employee can take the advantage of deduction under section 80G for the amount of contribution they have made.

As per the Circularwhere 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, it is not possible for such funds to issue a separate certificate to every such employee in respect of donations made to such funds as contributions made to these funds are in the form of a consolidated cheque. 

The Circular further states that an employee who makes donations towards these funds is eligible to claim deduction under section 80G of the Income-tax Act, 1961.

Referring this context, the Circular clarifies that the claim in respect of such donations will be admissible under section 80G of the Income-tax Act, 1961 on the basis of the certificate issued by the Drawing and Disbursing Officer (DDO)/ Employer in this behalf.

In other words, employees can claim deduction u/s 80G provided a certificate from the employer is received in which the employer shall state the fact that the contribution/donation was made out from employee’s salary account. The employer has to issue a certificate in the name of each individual employee specifying the amount of donation therein which he is eligible to claim deduction under section 80G.

Hence, as per the Circular of 2005, the deduction u/s 80G can be claimed on the basis of the certificate by the employer in this respect.

Further, the employer shall also allow a deduction for such donation u/s 80G in Form 16 of the concerned employee.

This Circular was issued in the year 2005 and the PM CARES Fund is established in 2020. Though the Circular does not specifically specify the name of the PM CARES Fund, the guidelines provided therein is equally applicable for group donation by employees through employer into the PM CARES Fund.

Every year CBDT issues a circular carrying the provisions and provide guidelines for deduction of income tax as TDS u/s 192 from the salary income. For the FY 2019-20, CBDT issued a similar Circular No. 4/2020 dated 16-01-2020. In the Circular, in para 5.5.1, the Board has provided the guidelines to be followed by an employer in case of group donation. These guidelines are based on the Circular of 2005. The relevant para is reproduced below-

5.5.11 Deductions on respect of donations to certain funds, charitable institutions, etc. (Section 80G):

Section 80G provides for deductions on account of donation made to various funds, charitable organizations etc. 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, it is not possible for such funds to issue separate certificate to every such employee in respect of donations made to such funds as contributions made to these funds are in the form of a consolidated cheque. An employee who makes donations towards these funds is eligible to claim deduction under section 80G. It is, hereby, clarified that the claim in respect of such donations as indicated above will be admissible under section 80G on the basis of the certificate issued by the Drawing and Disbursing Officer (DDO)/Employer in this behalf - Circular No. 2/2005, dated 12-1-2005. 


Legal position and issues arising after the introduction of online-based allowability of deduction under section 80G by Finance Act, 2020 for the collective donation from employees by the employer

Finance Act, 2020 has amended the Income Tax Act, 1961 to provide for deduction under section 80G to a donor only if a statement of donations received is furnished by the donee. The donee 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.

This provision is introduced for facilitating pre-filling of Income Tax Returns.

This is made applicable from AY 2020-21 or donations made during FY 2019-20 till 30-06-2020. The Taxation and other Laws (Relaxation of Certain Provisions) Ordinance, 2020 has extended the time limit inter alia to claim deduction under section 80G for making donation till 30.06.2020.

Hence, as per the amended provisions, deduction u/s 80G will be allowed to the assessee only if such donation is reflected in his Annual Information Statement (AIS). In other words, it is like allowability of TDS credit from Form 26AS. If the donation is not available in online AIS (to be replaced for Form 26AS) then the deduction for donation will not be available even if the donor has a valid receipt.

A question that arises how an employee will be able to get the deduction for the group donation. The Circular of 20005 and even 4/2020 was issued when this provision was not in the statute. Even the Circular dated 16-01-2020, which deals with deduction of income tax from salary u/s 192, was issued prior to the introduction of this provision by the Finance Bill, 2020.

The employer can issue a certificate as per the guideline prescribed in the even Circulars of 2005 and 2020 but how can the employer file a statement of donation received. A methodology shall be required to be introduced immediately so that employees can be allowed the deduction for the group donation.

In this context, it is to be noted that there is no system of bulk posting of online payment of donation by the employer through which the employer can inform the individual PAN of the employee making the donation.

It is also not possible for an employer to make an individual payment for each employee with their PAN more particularly where the number of employees is large.

Alternatively, the government should allow the deduction for such group donation to the concerned employees based on the deduction allowed by the employer in his Form 16 without any separate requirement of allowability of deduction from AIS of the concerned employee.

A clarification from the CBDT in this regard is highly recommended on this matter.




Read the full text of the Circular No. 2/2005 dated 12-01-2005 for claiming deductions under section 80G

CIRCULAR
INCOME-TAX ACT
Submission of certificate for claiming deductions under section 80G of the Income-tax Act, 1961 in respect of donation made by an employee to the Prime Minister’s National Relief Fund, the Chief Minister’s Relief Fund and the Lieutenant Governor’s Relief Fund

CIRCULAR NO. 2/2005, DATED 12-1-2005
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, it is not possible for such funds to issue separate certificate to every such employee in respect of donations made to such funds as contributions made to these funds are in the form of a consolidated cheque. An employee who makes donations towards these funds is eligible to claim deduction under section 80G of the Income-tax Act, 1961. It is, hereby, clarified that the claim in respect of such donations as indicated above will be admissible under section 80G of the Income-tax Act, 1961 on the basis of the certificate issued by the Drawing and Disbursing Officer (DDO)/ Employer in this behalf.

PRESS NOTE, DATED 12-1-2005
As per Circular No. 2/2005, dated 12th January, 2005, issued by the Central Board of Direct Taxes, it has been clarified 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 also be admissible under section 80G of the Income-tax Act, 1961 on the basis of the certificate issued by the Drawing and Disbursing Officer (DDO)/Employer in this behalf.

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