Introduction
Many taxpayers in India donate to charities to claim tax deductions under Section 80G of the Income Tax Act. While this is a common tax-saving strategy, recent investigations have revealed that many NGOs and trusts facilitate fraudulent 80G deductions, allowing taxpayers to claim deductions without making actual contributions.
For those who use this method, it is advisable to double-check the validity of the NGO and donation to ensure it is recognized by the Income Tax Department and avoid any potential tax scrutiny in the future.
This article explains:
How Section 80G deductions work
Common donation structures used for tax savings
How to verify if a charity is recognized for 80G benefits
Why 80G donations are not considered for employer TDS deductions
Recent cases where NGOs lost 80G status and what it means for donors
Key case laws on disallowance of TDS for bogus donations
1. Understanding Section 80G: Tax Deductions for Donations
Under Section 80G, taxpayers can claim deductions on donations made to approved charities and NGOs.
| Type of Donation | Deduction Allowed | Example |
|---|---|---|
| Donation to PM CARES Fund, National Relief Fund, etc. | 100% deduction without limit | ₹1,00,000 donation → ₹1,00,000 deduction |
| Donation to other approved NGOs | 50% or 100% deduction, subject to 10% of Adjusted Gross Total Income | ₹50,000 donation → ₹25,000 deduction |
| Cash donations above ₹2,000 | Not eligible for deduction | Only online/bank donations qualify |
A quick way to check if an NGO is 80G approved is to look up its name on the Income Tax portal.
2. TDS Disallowance on Bogus Donations: Key Case Laws
The Income Tax Department has disallowed fake donations used for tax evasion in multiple cases. Courts have upheld disallowance of deductions where transactions were not genuine.
1. CIT v. P. R. Ganapathy (2022)
- The taxpayer claimed 80G deduction for donations made to an NGO, but the department found no substantial evidence that the donation was actually used for charitable purposes.
- Court’s Ruling: The deduction was disallowed, and a penalty was imposed under Section 271(1)(c).
2. ITAT Mumbai in M/s. Kripa Securities (2021)
- The NGO was found to be issuing donation receipts without receiving actual funds.
- Court’s Ruling: Taxpayer’s 80G deduction was denied, and NGO’s registration was cancelled.
3. ACIT v. Sri Sainath Trust (2019)
- The trust had collected donations and refunded 90% of the money in cash to donors.
- Court’s Ruling: The entire donation was disallowed under Section 68, treating it as an unexplained cash credit.
Taxpayers should ensure that their donations are verifiable and made to legitimate charities to avoid such disallowances.
3. Why 80G Donations Cannot Be Submitted to Your Employer for TDS Deduction
Taxpayers often assume that 80G donations can be submitted to their employer for TDS adjustment. However, this is not the case.
Why Employers Do Not Consider 80G for TDS Deductions
- TDS deductions apply to salary-based exemptions like HRA, 80C (PF, ELSS), home loan interest deductions, etc.
- 80G is a deduction, not an exemption, meaning it applies only when filing ITR and not at the time of monthly TDS deductions.
- Employers do not validate donation receipts, so deductions must be claimed directly in the ITR.
Example:
- A salaried employee donates ₹50,000 to an NGO and submits the receipt to the employer for tax deduction.
- The employer rejects the claim, as 80G deductions are not considered in TDS calculations.
Solution: Taxpayers must claim 80G deductions while filing their ITR and ensure that the donation details match the AIS/Form 26AS records to prevent any inconsistencies.
4. How to Verify if an NGO is Recognized for 80G Benefits
Before donating, it is advisable to check if the NGO is registered under 80G to ensure eligibility for tax deductions.
Steps to Verify an NGO’s 80G Status
Check the NGO’s registration on the Income Tax Portal (www.incometax.gov.in).
Request a Valid 80G Certificate Before Donating—Ensure the receipt contains:
- NGO’s PAN number
- Registration number under Section 80G
- Date of approval by the IT Department
Ensure the Donation Appears in Form 26AS/AIS—Mismatch may lead to reassessment.
5. Recent Cases Where NGOs Lost 80G Status
Over 5,000 NGOs lost their 80G approval in the past three years due to non-compliance. Some well-known cases include:
1. ₹1,000 Crore Fake NGO Scam in Maharashtra (2023)
- 200+ NGOs were removed from the 80G list due to non-transparent operations.
- Businesses that had donated to these NGOs had their tax deductions reversed.
2. ₹150 Crore Circular Donation Case in Delhi (2022)
- Certain NGOs facilitated tax-free money laundering by returning donations in cash.
- Donors who had claimed deductions faced reassessment notices.
Suggestion: Keep an eye on changes in the NGO’s 80G status to avoid retrospective tax demands.
6. Key Takeaways: Double-Check Before Claiming 80G Deductions
Check the NGO’s 80G registration on the Income Tax Portal before donating.
Ensure AIS/Form 26AS reflects the correct donation amount.
Do not submit 80G receipts to your employer—claim them directly in ITR.
Ensure the donation receipt has the NGO’s PAN, 80G registration, and valid approval date.
If an NGO loses its 80G status, past deductions may be reversed—stay updated.
By following these steps, taxpayers can continue benefiting from 80G deductions while ensuring compliance and transparency.
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