How to Treat Donations in Kind–

Whether They Are Taxable or Exempt

Overview

Donations in kind, such as food, clothing, or services, are common for NGOs but lack clear statutory guidance on tax treatment. This section explores their treatment for donors and NGOs.

Tax Treatment for Donors

Under Section 80G, donors can claim deductions for cash donations to approved NGOs, but in-kind donations (e.g., clothes, food) are ineligible (Tax2win). Cash donations exceeding Rs. 2,000 are also ineligible unless made through banking channels.

Tax Treatment for NGOs

Section 2(24)(iia) includes voluntary contributions as income, potentially encompassing in-kind donations if converted to monetary value. If NGOs sell donated goods, the proceeds are taxable as income. If used directly for charitable purposes (e.g., distributing food), they are likely exempt, though no specific circular confirms this (IndiaIsUs).

Accounting and Reporting

NGOs must:

• Record in-kind donations at fair market value.
• Document their use (e.g., distribution or sale).
• Report all donations in annual returns to the Income Tax Department.

International Perspectives

• United States: Donors can deduct in-kind donations if made to qualified organizations, with valuation rules.
• United Kingdom: Similar deductions apply, with specific valuation guidelines.

Practical Considerations

NGOs should consult tax professionals to determine the taxability of in-kind donations and ensure proper accounting to avoid disputes with tax authorities.

Conclusion

NGOs in India must navigate complex tax provisions under Sections 2(15), 115BBC, and related sections to maintain exemptions and manage liabilities. Understanding judicial trends, maintaining records, and seeking professional advice are crucial for compliance. Thelack of clarity on in-kind donations highlights the need for further legislative guidance.

Summary of Key Tax Provisions for NGOs