Income Tax: Deduction U/s 35 AC

Income Tax: Deduction U/s 35 AC
Purpose of 35 AC

NGOs can register itself u/s 35AC from the Central Government of India. Potential donors get
100% exemption for the amount donated towards 35AC.

How is it important to NGOs and Corporates

Under section 35AC, organizations having income from business or profession can get 100
per cent deduction. Contributions made to a project/scheme notified as an eligible project or
scheme for the purpose of section 35AC of the Income Tax Act, would entitle 100% deduction
from income to tax payers (companies, business persons, etc.), who donate any sum to NGOs
for eligible projects.

What is an eligible project or scheme

An eligible project or scheme is one, which the Central Government on the recommendation of
the National Committee (for Promotion of Social and Economic Welfare), may so notify in the
Official Gazette. It should relate to one or more of the following:-

 Non-formal education and literacy, especially for children and women
 Creation of employment opportunities for urban and rural population living below the
poverty line
 Supportive services for women to engage in productive work (e.g.: care of children of
working women by establishing Crèches / Balwadis, etc.)
 Rural Health Programs
 Family Welfare and immunization
 Tree plantation
 Social Forestry
 Development of Irrigation Resources
 Rural Sanitation - Construction of low cost latrines
 Medical camps in rural areas
 Land development and recovering of waste land with special concern on ecological
improvement
 Construction of school building for children belonging to the economically weaker
sections of the society
 Construction of dwelling units for the economically weaker sections
 Soil and water conservation including harvesting of run-off water
 Rural and non-farm activities
 Leprosy eradication
 Promotion of sports
 Establishment and running of non-conventional and renewable sources of energy
systems
 Any other program for uplift of the rural poor or the urban slum dwellers, as the
National Committee may consider fit for support

CERTIFICATE TO BE ISSUED TO THE DONOR

All approved NGOs are required to issue a certificate to the donor for all contributions &
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 information in respect of each
contributor:

i) Name of the contributors & their addresses.
ii) PAN.
iii) Amount of contributions.
iv) The project/scheme for which the contribution is made.
v) Total amount of contribution received during the year.
vi) Total cost of the project approved by the National Committee.

Allowability of CSR Expenditure u/s. 35ACand section 80G of the Act
Section 35AC is available to assesses who have income from the head ‘business’ or
‘profession’. Therefore, for the assesses who do not have income from business or
profession, section 80GGA provides for deduction on donations made to eligible projects
under section 35AC.

100 per cent deduction is available under section 80GGA, subject to the available gross total
income under section 80A. Therefore, unlike section 35AC, deduction under section 80GGA
cannot be carried forward in the form of losses to next year .

Conditions necessary for approval

1. The association or institution is;
a) Constituted as a public charitable trust.
b) Registered under the Societies Registration Act, 1860 (Act 21 or 1860) or under
any law corresponding to that Act.
c) Registered under section 25 of the Companies Act, 1956 (Act 1 of 1956).
2. Persons managing the affairs of the association or institution are persons of proven integrity
3. The activities of the association or institution are open to citizens of India without any
distinction and are not for the benefit of any individual or community
4. The association or institution maintains regular accounts of its receipts and expenditure;
5. The instrument or the rules or regulations governing the association or institution do not
contain any provision for the transfer or application at any time, of the whole or any part of its
income or assets for any purpose other than a charitable purpose.

Approval Process

The application shall be made to the Secretary, National Committee for Promotion of Social &
Economic Welfare, Dept. of Revenue, Govt. of India, North Block, New Delhi – 110001
The Secretariat checks the application. After this it is circulated to the members of the National
Committee. The Committee generally meets once in three to six months. The Committee makes
a recommendation if the project is considered suitable. Please note that the Committee may
ask for any further explanation before taking its decision on an application. It will give its
approval only for up to three years at a time. If the project goes on for more than three years,
then before giving further approval, the Committee will examine the progress of the project.
Based on the Committee’s recommendation, the Government grants approval. After approval,
the project is notified in the Official Gazette. 

Time Period

The projects are normally approved for a period of 2-3 years. Extension is allowed at the end if
the project is satisfactorily implemented. The amount of approval may range from less than a
Lakh to several crores. If you give all the required information in the application, then it will
generally take about six months for the approval to be granted.