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TMI BlogTransformation of Tax Deduction Mechanism in respect of donations to certain funds : Clause 133 of the Income Tax Bill, 2025 Vs. Section 80G of the Income-tax Act, 1961X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Section 80G of the Income-tax Act, 1961, which has long served as the statutory provision governing tax deductions for charitable donations in India. The significance of these provisions lies in their dual role: incentivizing philanthropy and ensuring regulatory oversight over the entities eligible for such fiscal benefits. The present analysis provides a detailed, provision-wise commentary on Clause 133, followed by a systematic comparison with the existing Section 80G. The aim is to highlight legislative intent, key similarities and differences, interpretative issues, and practical implications for taxpayers, charitable organizations, and the administration of direct taxes in India. Objective and Purpose The legislative intent behind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Foundation for Communal Harmony, National Blood Transfusion Council). * Universities or educational institutions of national eminence, subject to approval. * Specific state government funds (e.g., Gujarat Earthquake Relief), and district-level literacy societies. * Medical relief funds, welfare funds for armed forces personnel, and funds for illness assistance. * National Sports Development Fund, National Cultural Fund, Fund for Technology Development, Swachh Bharat Kosh, Clean Ganga Fund, and National Fund for Control of Drug Abuse. * Entities promoting family planning, and sports associations recognized by the Central Government (for companies). The inclusion of explicit exclusions for sums spent under Corporate Social Respons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e and Mode of Donation (Sub-sections 4 and 5) * Deductions are allowed only for donations made as a sum of money (not in kind). * Donations exceeding Rs. 2,000 must be made by a mode other than cash to qualify for deduction, reinforcing the move towards digital and traceable transactions. 5. Compliance and Reporting (Sub-section 6) For donations to institutions or funds under sub-section (1)(b)(ii), the deduction is allowed only if: * The institution or fund furnishes information regarding the donation to the prescribed authority. * The claim is subject to verification as per the risk management strategy formulated by the Board. This provision strengthens compliance and aligns with the broader digitalization and risk-based monito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, depending on the nature of the recipient fund or institution. The underlying policy is consistent: donations to funds of national importance or for specific critical purposes (e.g., defence, disaster relief) are incentivized more than general charitable donations. Section 80G, however, contains a more complex calculation mechanism, especially where the aggregate includes sums eligible for both 100% and 50% deduction (sub-section 1(i)). Clause 133 simplifies this by more directly specifying the eligible categories under each quantum. 3. Aggregate Cap Both provisions impose a 10% cap (of gross total income or adjusted gross total income) on certain categories of donations. Section 80G details the sub-clauses to which the cap applies, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Donation and Anti-Abuse Provisions Both provisions restrict deductions to monetary donations (not in kind) and require non-cash payment for amounts exceeding Rs. 2,000. Section 80G previously had a higher threshold (Rs. 10,000), which has since been aligned with the Rs. 2,000 limit, now mirrored in Clause 133. The anti-duplication rule is present in both (Section 80G(5A); Clause 133(3)), ensuring that a donation cannot be claimed under multiple provisions. 7. Reporting, Compliance, and Digitalization Section 80G has, post-2020, mandated digital reporting by recipient institutions (sub-section 5(viii), (ix)), requiring statements to be furnished to the tax authorities and certificates to be issued to donors. Clause 133(6) similarly co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting and risk-based verification enhances oversight but also increases administrative responsibility. * Clear guidelines and robust IT systems will be necessary to process and verify the large volume of data generated under these provisions. Ambiguities and Issues in Interpretation Transitional Issues Transition from Section 80G to Clause 133 may give rise to questions regarding the status of approvals granted under the old regime, treatment of donations made during the transition period, and continuity of eligibility for ongoing or recurring donations. Definition of Charitable Purpose While both provisions exclude religious purposes, the practical interpretation of "substantially religious" may still give rise to disputes, e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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