What is Section 80G of the Income Tax Act?
Section 80G of the Income Tax Act, 1961 allows taxpayers to claim a deduction for donations made to certain charitable organizations and institutions. The deduction is available for donations made in cash or kind.
What is CSR?
Corporate Social Responsibility (CSR) is a concept in which companies decide voluntarily to contribute to sustainable development by delivering economic, social and environmental benefits for all stakeholders.
Can donations made towards CSR be claimed as a deduction under Section 80G?
Yes, donations made towards CSR can be claimed as a deduction under Section 80G, subject to certain conditions.
The conditions are as follows:
- The donation must be made to a charitable organization or institution that is registered under Section 80G of the Income Tax Act.
- The donation must be made for a purpose that is specified in Section 80G of the Income Tax Act.
- The taxpayer must obtain a receipt from the charitable organization or institution for the donation.
How much deduction can be claimed under Section 80G for donations made towards CSR?
The deduction that can be claimed under Section 80G for donations made towards CSR is 50% of the amount donated.
Example:
A company donates ₹1 crore to a charitable organization that is registered under Section 80G of the Income Tax Act for a purpose that is specified in Section 80G of the Income Tax Act. The company will be able to claim a deduction of ₹50 lakh under Section 80G for this donation.
Recent ITAT ruling
In a recent ruling, the Income Tax Appellate Tribunal (ITAT) held that donations made towards CSR are allowable as a deduction under Section 80G of the Income Tax Act.
The ITAT held that there is no prohibition in the Income Tax Act on claiming a deduction under Section 80G for donations made towards CSR.
The ITAT ruling is a significant development for companies that engage in CSR activities. It means that companies can now claim a deduction under Section 80G for donations made towards CSR, in addition to the benefits that they already derive from engaging in CSR activities.
Benefits of claiming a deduction under Section 80G for donations made towards CSR
There are several benefits of claiming a deduction under Section 80G for donations made towards CSR. These benefits include:
- Reduced tax liability: Claiming a deduction under Section 80G can reduce the taxpayer’s tax liability. This can free up resources that can be used for other purposes, such as investing in the business or expanding CSR activities.
- Improved brand image: Claiming a deduction under Section 80G can help to improve the taxpayer’s brand image. This is because it shows that the taxpayer is committed to social responsibility.
- Increased employee engagement: Claiming a deduction under Section 80G can help to increase employee engagement. This is because employees are more likely to be engaged with a company that is committed to social responsibility.
Conclusion
Claiming a deduction under Section 80G for donations made towards CSR is a beneficial option for companies. It can help to reduce the company’s tax liability, improve its brand image, and increase employee engagement.