Donations for Kerala flood relief
Frequently asked questions (FAQs)
1) I am coordinating some flood relief work on my own. Friends of mine from India have agreed to give me some donations to my bank account. Can I collect the funds, keep receipts and also keep vouchers for expenses incurred. Will I comply with the rules this way?
Ans: While receiving donations in money to your bank account from any person in India for coordinating relief work, certain provisions of the Income Tax Act has to be kept in mind. Where any person receives any sum of money or any moveable property, without consideration and if the aggregate fair market value of the same exceeds Rs. 50,000/-, the same is taxable under section 56 of the Income Tax Act. But if the same is received from a relative (as separately explained below) the same is not taxable. From the above, we can infer that donations received in money and in kind can be charged to tax under the Income Tax Act.
But if you can establish that you are coordinating the relief work as an agent of another person (i.e., the donor), then essentially it is not an income in the hands of the recipient. So, the burden of proof will be on the relief coordinator to show to the satisfaction of the assessing officer that the amount received was not in the nature of an income and that he acted as an agent on behalf of the donor. A statement is to be prepared showing all the inflows and outflows. It will be useful to have a letter from the donor requesting the coordinator to act as his agent; and that he has given the money for the purposes of flood relief activities. The next thing to prove is that the relief coordinator spent the monies received from the donor for flood relief. The relief coordinator should keep all the bills, invoices and receipts as the proof of the amounts spent. It is always good to maintain a separate bank account for this purpose. Photographs of various charitable activities done may come in handy at times.
Who is considered as a relative for the above provisions? “Relative” means-
(i) spouse of the individual;
(ii) brother or sister of the individual;
(iii) brother or sister of the spouse of the individual;
(iv) brother or sister of either of the parents of the individual;
(v) any lineal ascendant or descendant of the individual;
(vi) any lineal ascendant or descendant of the spouse of the individual;
(vii) spouse of the person referred to in clauses (ii) to (vi);
2) Can I collect funds from friends outside India who will transfer to my bank account? Heard that there are FCNR and FCRA compliances?
Ans: The Foreign Contribution (Regulation) Act, 2010 provides that persons having definite cultural, economic, educational, religious and social programmes should get themselves registered with the Government of India before accepting any ‘foreign contribution’. In case a person falling in the above category is not registered with the Central Government, it can accept foreign contribution only after obtaining prior permission of the Central Government. Further, under the Act, the Central Government is empowered to prohibit any person or organisation not specified in the Act from accepting any foreign contribution.
3) I have collected money already in my bank account. What should i do now ?
Ans: It may happen that you have already received amounts in your bank account. You may transfer the funds received to a separate bank account kept for the sole purpose of spending donations received. Get a letter from the donor as explained above. If possible, make payments otherwise than by cash (ie, account payee crossed cheques or electronic payments). Collect bills, receipts for each rupee spent. If payments are made to daily labourers, prepare a receipt with name, address of the person, other details and get it signed by the labourer. Finally prepare a statement of inflows and outflows.
4) What are the legal ways to collect money for flood relief?
Ans: The organized way of doing charity is through charitable trusts. Charitable trusts are those trusts whose object is to provide the services to all people in the society without discrimination of cast, creed and gender etc. Separate registration is required to give exemption u/s 80G to the donor.
5) Will I get income tax exemption for the donations made for flood relief in Kerala?
Ans: Deduction can be claimed by any tax payer -individuals, company, firm or any other person in respect of certain donations under section 80G. Any donations made in cash exceeding Rs 2,000 will not be allowed as deduction. Thus the donations above Rs 2,000 should be made in any mode other than cash to qualify as deduction under section 80G. In-kind contributions such as food material, clothes, medicines etc do not qualify for deduction under section 80G.
· You must obtain a stamped receipt from the trust or institution where you make a donation.
· It acts as a valid proof of donation.
· Such receipt should have the name, address and PAN of the trust or institution mentioned on it.
· Receipt should also include the name of the donor and details of amount donated mentioned on it.
· Registration number of the trust under section 80G and validity of registration (registration period) must be mentioned on the receipt.
We can consider 3 types of donations:
i) Donations paid to Kerala Chief Ministers Relief Fund:
Donations paid to Chief Ministers Relief Fund will be fully allowed as a deduction from the Gross Total Income of the assessee under section 80G. There is no qualifying limit condition for this deduction.
ii) Donations made to approved charitable institutions for flood relief:
Donations made to any institution which satisfies conditions mentioned in Section 80G(5) or to Government or any local authority to be utilised for flood relief is allowed as deduction. In this case 50% of the donation paid is allowed as deduction subject to a maximum of 10% of adjusted gross total income.
Adjusted total income: Adjusted gross total income is the gross total income (sum of income under all heads) less the following:
· Amount deductible under Sections 80CCC to 80U (but not Section 80G)
· Exempt income
· Long-term capital gains
· Income referred to in Sections 115A, 115AB, 115AC, 115AD and 115D, relating to non-residents and foreign companies
iii) Donations made on your own to deserving people
Donations made on your own or through any institution which does not satisfy conditions under section 80G(5) will not be allowed as deduction under the Income Tax Act.