Anonymous Donations and Tax Liability Under Section 115BBC– What NGOs Must Know

Statutory Provisions

Section 115BBC, introduced by the Finance Act, 2006, taxes anonymous donations to prevent unaccounted money from entering charitable organizations. It applies to:

• Universities/educational institutions under Section 10(23C)(iiiad/vi).
• Hospitals/institutions under Section 10(23C)(iiiae/via).
• Funds/institutions under Section 10(23C)(iv/v).
• Trusts/institutions under Section 12AA.

Key Provisions:

• Anonymous Donation: Defined under Section 2(24)(iia) as voluntary contributions without donor identity records (name, address).
• Tax Rate: 30% on anonymous donations exceeding the higher of:

• 5% of total donations received.
• Rs. 1 lakh

• Exemptions: Wholly religious trusts are exempt, and partly religious/charitable trusts are taxed only for donations to medical/educational institutions.

Legislative Intent

The provision aims to curb tax evasion by ensuring transparency in donations. The 2009 amendment provided relief by exempting wholly religious trusts and limiting taxability for mixed trusts (IndiaFilings).

Judicial Interpretations

• DIT (Exemptions) vs. All India Pingalwara Charitable Society (2016) 381 ITR 28 (P&H): The Punjab and Haryana High Court upheld tax liability on anonymous donations exceeding Rs. 1 lakh, emphasizing compliance with Section 115BBC.
• DIT (Exemptions) vs. Bhagwan Shree Laxmi Narain Dham (2014) 367 ITR 1 (Del): The Delhi High Court confirmed taxability of anonymous donations exceeding 5% of total donations

Practical Strategies for NGOs

NGOs can minimize tax liability by:

• Maintaining detailed donation records, including donor identities.
• Encouraging donors to provide identification to avoid anonymous classification.
• Limiting anonymous donations to stay within the 5% or Rs. 1 lakh threshold.
• Using donations for charitable purposes to align with exemption criteria.

Comparison with Other Provisions

Section 115BBC differs from Section 115BBE, which taxes cash receipts exceeding Rs. 2 lakh, as it specifically targets anonymous donations. Section 80G, which provides donor deductions, does not directly affect NGO tax liability under Section 115BBC.