MUMBAI: Due to the increased exemptions announced in the most recent Budget, more people are likely to switch to the new tax system, which could have an effect on retail donations to charities.
Organizations that collaborate closely with non-governmental organizations (NGOs) believe that the government's expectation that up to two-thirds of taxpayers may choose the new tax system, which is currently the default, could discourage individuals from making charitable contributions. However, individuals can still claim deductions under section 80G of the Income Tax Act by adhering to the previous tax system, which has not changed.
"The youth become aware of charitable donations not only as a way to save tax but also to impact society, make a difference, and become more engaged with causes," stated Dhaval Udani, founder and MD of the non-profit payment platform DanaMojo. The government will steal these valuable lessons by making the new tax system, which does not include any exemptions, the default one. This is extremely naive."
Udani suggested that the government should instead make an exception and allow deductions under section 80G, similar to what the United States did with the 2017 Tax Cuts and Jobs Act, which allowed charitable deductions even for those who were below the limit and did not itemize their deductions.
However, Sumit Tayal, COO of donation and fundraising platform Give, does not believe that the new tax system will have a negative impact on giving. In addition to financial considerations, a donor's decision to donate is influenced by an emotional connection to the cause, according to Tayal.
ions is a deduction that can be taken under section 80G of the 1961 Income Tax Act. According to Parizad Sirwalla, partner and national head - tax, global mobility services, KPMG in India, this deduction is currently prohibited under the new tax system. Sirwalla continued, "The same remains unchanged under the amended new tax regime for individuals in accordance with Budget 2023." As a result, donations cannot be deducted from taxable income even under the revised new tax system. If a taxpayer wants to deduct these specific donations, he or she can still do so by choosing the old tax system if it is more beneficial.