Weighted Deductions Under Section 35 (1) (ii) Of Income Tax Act – Vigilance And Care That Donors Must Exercise
This article has been penned by CAP Legal Intern Tanay Gandhi.Hw was with CAP for 4 weeks assisting the Legal Team and this article is based on his research and reflection.
Studying
At: The
West Bengal National University of Juridical Sciences (WBNUJS)
At: The
West Bengal National University of Juridical Sciences (WBNUJS)
At
CAP:
For 4 weeks
CAP:
For 4 weeks
Assisted
With: Researched
Legal
Compliance relating to labour laws, additional compliance applicable
to NGOs working with environment causes & the applicability of
tax deduction u/s 35(1)(ii). He also used his passion for photography
to capture some images for our website.
With: Researched
Legal
Compliance relating to labour laws, additional compliance applicable
to NGOs working with environment causes & the applicability of
tax deduction u/s 35(1)(ii). He also used his passion for photography
to capture some images for our website.
Under
the provisions of Section 35 of the Income Tax Act, certain
institutions involved in scientific research which have been given
prior approval, enjoy a special tax status. Donors making any
donations to them under specific directions that such funds be used
for scientific research are eligible for a weighted deduction of the
donated amount from their taxable income. The Act therefore
encourages donation and grant-making to institutions involved in
scientific research, as a desirable social objective. It is with this
in mind that the framers of the Act have allowed for a weighted
deduction in such instances. However, there are stringent
requirements, often not only from the IT Dept., that institutions
wanting such approval must meet. In light of the complicated approval
process as well as the complex procedures involved in renewal, it
becomes very important for donors and those making grants, who seek
this weighted deduction to know and understand if the organisation
they are funding has the required approval or not.
the provisions of Section 35 of the Income Tax Act, certain
institutions involved in scientific research which have been given
prior approval, enjoy a special tax status. Donors making any
donations to them under specific directions that such funds be used
for scientific research are eligible for a weighted deduction of the
donated amount from their taxable income. The Act therefore
encourages donation and grant-making to institutions involved in
scientific research, as a desirable social objective. It is with this
in mind that the framers of the Act have allowed for a weighted
deduction in such instances. However, there are stringent
requirements, often not only from the IT Dept., that institutions
wanting such approval must meet. In light of the complicated approval
process as well as the complex procedures involved in renewal, it
becomes very important for donors and those making grants, who seek
this weighted deduction to know and understand if the organisation
they are funding has the required approval or not.
It
is quite clear that an organisation that has approval for weighted
deductions under Section 35 (1) (ii) will attract more donations,
corporate grants, and general funding than one that does not. This
may lead to organisations not being entirely honest with their status
vis-a-vis Section 35 (1) (ii). It therefore is vital that those
individuals or organisations making the grants, or the donations, be
fully aware of the law regarding the weighted deductions and engage
in diligent checks of the donee organisation to know if they have
approval under the relevant provision of law.
is quite clear that an organisation that has approval for weighted
deductions under Section 35 (1) (ii) will attract more donations,
corporate grants, and general funding than one that does not. This
may lead to organisations not being entirely honest with their status
vis-a-vis Section 35 (1) (ii). It therefore is vital that those
individuals or organisations making the grants, or the donations, be
fully aware of the law regarding the weighted deductions and engage
in diligent checks of the donee organisation to know if they have
approval under the relevant provision of law.
The
first thing to look for while making a grant or donation to any such
organisation that claims to have approval from the IT Dept. is
whether that particular organisation involved in scientific research
is an organisation recognised by the Department of Scientific and
Industrial Research. The SIRO (Scientific and Industrial Research
Organisation) certification that is granted by the DSIR is given to
organisations after careful analysis and assessment. The DSIR is
comprehensive in its assessment of organisations and it is made sure
that the organisation is truly involved in innovative or useful
scientific research. Thus, it helps potential grant-makers or donors
to know whether the organisation they are funding is involved in
genuine, quality research work. With regard to weighted deductions,
the SIRO certification is a mandatory pre-requisite for any
organisation attempting to gain approval under Section 35 (1) (ii).
Therefore the SIRO certification is a useful first-step for donors
and grant-makers, to know whether they can avail of the benefits of
the weighted deduction by donating to the concerned organisation. If
there is no SIRO certification, the question of approval for weighted
deductions does not even arise. SIRO certifications are given for
three-year periods and renewals must be before the expiry of the
running period.
first thing to look for while making a grant or donation to any such
organisation that claims to have approval from the IT Dept. is
whether that particular organisation involved in scientific research
is an organisation recognised by the Department of Scientific and
Industrial Research. The SIRO (Scientific and Industrial Research
Organisation) certification that is granted by the DSIR is given to
organisations after careful analysis and assessment. The DSIR is
comprehensive in its assessment of organisations and it is made sure
that the organisation is truly involved in innovative or useful
scientific research. Thus, it helps potential grant-makers or donors
to know whether the organisation they are funding is involved in
genuine, quality research work. With regard to weighted deductions,
the SIRO certification is a mandatory pre-requisite for any
organisation attempting to gain approval under Section 35 (1) (ii).
Therefore the SIRO certification is a useful first-step for donors
and grant-makers, to know whether they can avail of the benefits of
the weighted deduction by donating to the concerned organisation. If
there is no SIRO certification, the question of approval for weighted
deductions does not even arise. SIRO certifications are given for
three-year periods and renewals must be before the expiry of the
running period.
Once
the SIRO certification of an organisation is verified, the donor can
move ahead and check the organisation’s recognition as an
institution involved in scientific research under the IT Dept. and
its approval for weighted deductions. This is a little tricky. When
an organisation approaches the IT Dept. for approval, it is in effect
approaching the Dept. to be approved as a scientific institution
under Section 35. This application goes through the local authority
to the Ministry, where approval is either granted or rejected. Once
an organisation has such approval, donors and grant-makers to it are
entitled to weighted deductions. These deductions happen at the local
authority level, thus it is important for the organisation also to
have been certified by the local authority as one in which weighted
deductions are available for donations or grants.
the SIRO certification of an organisation is verified, the donor can
move ahead and check the organisation’s recognition as an
institution involved in scientific research under the IT Dept. and
its approval for weighted deductions. This is a little tricky. When
an organisation approaches the IT Dept. for approval, it is in effect
approaching the Dept. to be approved as a scientific institution
under Section 35. This application goes through the local authority
to the Ministry, where approval is either granted or rejected. Once
an organisation has such approval, donors and grant-makers to it are
entitled to weighted deductions. These deductions happen at the local
authority level, thus it is important for the organisation also to
have been certified by the local authority as one in which weighted
deductions are available for donations or grants.
The
tricky part is that while at the Ministry level approval as a
scientific institution involved in scientific research is given for a
period of three years, the certification for weighted deduction from
the local authority is given only for periods of a year. Thus, donors
and grant-makers must be careful and vigilant that the organisation
they are funding is not only an approved scientific institution but
has also received certification from the local authority for weighted
deduction.
tricky part is that while at the Ministry level approval as a
scientific institution involved in scientific research is given for a
period of three years, the certification for weighted deduction from
the local authority is given only for periods of a year. Thus, donors
and grant-makers must be careful and vigilant that the organisation
they are funding is not only an approved scientific institution but
has also received certification from the local authority for weighted
deduction.
Another
aspect that must be noted by donors and grant-makers is that the IT
Rules prescribe a period of up to 6 months for Dept. to either grant
or refuse approval under Section 35 (1) (ii). However, in actual
practice, it is almost unheard of for the Dept. to give its final
verdict on an application before completion of 6 months from the date
of submission of application. It is therefore advised that a delay in
receiving approval from the Dept. is not necessarily due to the
organisation not being suitable for such, but rather due to the Dept.
wilfully and often unnecessarily stretching the process to 6 months.
aspect that must be noted by donors and grant-makers is that the IT
Rules prescribe a period of up to 6 months for Dept. to either grant
or refuse approval under Section 35 (1) (ii). However, in actual
practice, it is almost unheard of for the Dept. to give its final
verdict on an application before completion of 6 months from the date
of submission of application. It is therefore advised that a delay in
receiving approval from the Dept. is not necessarily due to the
organisation not being suitable for such, but rather due to the Dept.
wilfully and often unnecessarily stretching the process to 6 months.
The
special provisions for weighted deductions under the IT Act are
designed to encourage scientific research by increasing funding in
that regard from outsiders. To that end, it is a useful provision of
general public importance. However, the stringent norms to gain the
certification required under the provisions of the law make it rather
complicated a process. At the end of the day, it is up to the donors
and grant-makers, who in the end will benefit from the weighted
deduction, to ensure that the organisations they are supporting have
the approvals from the IT Dept. and all other certifications that are
pre-requisites for that.
special provisions for weighted deductions under the IT Act are
designed to encourage scientific research by increasing funding in
that regard from outsiders. To that end, it is a useful provision of
general public importance. However, the stringent norms to gain the
certification required under the provisions of the law make it rather
complicated a process. At the end of the day, it is up to the donors
and grant-makers, who in the end will benefit from the weighted
deduction, to ensure that the organisations they are supporting have
the approvals from the IT Dept. and all other certifications that are
pre-requisites for that.
CAP CEO Noshir Dadrawala’s comments – “The concept of weighted tax
deduction is quite unique and while it’s a major incentive for
donors there are several fraudulent operators who mislead donors.
This article by our intern Tanay is not just an eye opener for
potential donors but provides due-diligence steps that should be
taken by the donor as also kept ready by the donee organisations.”
deduction is quite unique and while it’s a major incentive for
donors there are several fraudulent operators who mislead donors.
This article by our intern Tanay is not just an eye opener for
potential donors but provides due-diligence steps that should be
taken by the donor as also kept ready by the donee organisations.”