35 AC: Tax Exemption

Introduction

As we already know that an NGO can avail income tax exemption by getting itself registered and complying with certain other formalities, but such registration doesn’t provide any benefit to the persons making donations. The Income Tax Act has certain provisions which offer tax benefits to the “donors”. All NGOs should avail the advantage of these provisions to attract potential donors. Section 35AC is one of such sections.

Registration u/s 35ac

The Central Government approves certain NGOs and notifies them as eligible for project or schemes for the purposes of section 35AC. If an NGO succeeds in getting such an approval for its projects, then it stands a very good chance of mobilising funds from the corporate and the business sector. Business houses making contribution to such approved projects are allowed the benefits of deducting such contribution as expenditure.

National Committee

The Central Government has constituted a National Committee to identify projects and schemes to be notified under section 35AC, such committee normally consists of eminent persons. All NGOs are entitled to apply to the National Committee to get its projects or schemes approved.

Section 35AC of the Income Tax Act, 1961, was introduced in 1992 as a means to promote social welfare activities and provide tax benefits to businesses that undertake such projects. The section provides a tax deduction to the tune of 100% of the amount spent by a company on specified social welfare projects.

Certificate to be issued to donor

All approved NGOs are required to issue a certificate to the donor for all contributions and receipts under section 35AC. The certificate is to be issued in Form 58A.
This certificate will enable the donor to claim exemption from its taxable income. Further, the NGOs should also send an Annual Report to the National Committee indicating the progress of the work relating to the project/scheme and the following informations in respect of each contributor:

  • name of the contributors and their addresses.
  • PAN.
  • amount of contributions.
  • the project/scheme for which the contribution is made.
  • total amount of contribution received during the year.
  • total cost of the project approved by the National Committee.

Such Annual Report should reach the National Committee by 30th June, following the financial year in which the amount is received.