If you donate to a charitable trust, NGO, university, hospital, or any registered institution in India, you may be eligible for a tax deduction under Section 354 of the Income Tax Act, 2025 (the provision replacing the well-known Section 80G of the 1961 Act). But simply making a donation and keeping a receipt is no longer sufficient. Since the Finance Act 2021, a digital verification system has been in place-the NGO must file Form 10BD (Statement of Donations) with the Income Tax Department, and the donor must obtain Form 10BE (Certificate of Donation) to claim the deduction.
This system ensures that the donation amount claimed by the donor matches the amount reported by the NGO, preventing fraudulent or inflated deduction claims. Under the new Income Tax Act, 2025, the donor deduction framework is consolidated under Section 354, and the Form 10BD/10BE mechanism continues as the backbone of donation compliance.
This guide explains how the system works, what donors must do, what NGOs must do, and how to ensure your donation deduction is accepted. For NGOs needing 80G registration services (https://www.patronaccounting.com/80g-registration), understanding Section 354 compliance is essential for donor relations.
Key Terms You Should Know
- Section 354: The donor deduction provision under IT Act, 2025. Replaces Section 80G. Allows deductions for donations to registered NPOs, specified government funds, and research institutions.
- Form 10BD: Statement of Donations filed electronically by the RNPO (the receiving institution) with the Income Tax Department. Contains donor-wise details of all donations received during the financial year. Must be filed by 31 May following the financial year.
- Form 10BE: Certificate of Donation generated after filing Form 10BD. The NGO must download and issue this certificate to each donor. The donor uses Form 10BE as the primary proof when claiming the deduction in their ITR.
- Pre-ARN (Pre-Acknowledgement Number): A unique number generated by the NGO on the e-filing portal before filing Form 10BD. Can be quoted on manual donation receipts issued at the time of receiving donations. Up to 1,000 Pre-ARNs can be generated without filing Form 10BD.
- Section 234G: Penalty provision for late filing of Form 10BD. Fee of Rs 200 per day of delay, capped at the total donation amount for the delayed period.
- Section 271K: Penalty for failure to furnish or late furnishing of Form 10BD. Minimum Rs 10,000, maximum Rs 1,00,000.
- Old Tax Regime vs New Tax Regime: The donor deduction under Section 354 (80G) is available only under the old tax regime. Taxpayers who opt for the new tax regime cannot claim this deduction.
How the Donation Verification System Works
The Form 10BD/10BE mechanism creates a closed-loop verification system:
- Donor makes a donation. The donor contributes to a registered NPO (trust, society, Section 8 company, university, hospital, government fund, etc.) through cheque, bank transfer, UPI, or cash (up to Rs 2,000). The NGO issues a receipt at the time of donation.
- NGO files Form 10BD by 31 May. After the financial year ends, the NGO compiles all donations received and files Form 10BD electronically on the Income Tax e-filing portal. This statement includes donor-wise details: name, PAN/Aadhaar, address, donation amount, payment mode, and the section under which deduction is eligible.
- Form 10BE is generated. After filing Form 10BD, the system generates Form 10BE (Certificate of Donation) for each donor. The NGO downloads the certificates and issues them to donors. Form 10BE becomes available for download 24 hours after filing Form 10BD.
- Donor claims deduction in ITR. The donor enters the donation details in their income tax return filing (https://www.patronaccounting.com/income-tax-return) using the information from Form 10BE. The ITR must include the unique certificate number, NGO’s PAN, 80G/Section 354 registration number, and the donation amount.
- IT Department verifies. The Income Tax Department cross-checks the donation amount claimed by the donor against the Form 10BD filed by the NGO. If the amounts match, the deduction is accepted. If there is a mismatch, the deduction may be disallowed or the return flagged for review.
Who Must File Form 10BD and Issue Form 10BE?
The filing obligation is on the receiving institution (the NGO/trust/RNPO), not the donor. The following entities must file Form 10BD:
- Trusts, societies, and Section 8 companies registered under Section 354 (old Section 80G) of the IT Act
- Institutions approved under Section 35(1)(ii), 35(1)(iii), or 35(1A)(i) (research and rural development institutions)
- Any RNPO that has received donations for which donors are eligible for tax deductions
Key exceptions:
- If the RNPO did not receive any donations during the financial year, Form 10BD filing is not required (no nil return needed)
- Foreign contributions received under FCRA 2010 from foreign sources are not reported in Form 10BD
- Corpus donations where the donor does not seek deduction may still need reporting if the institution has Section 354 registration
For entities managing trust registration (https://www.patronaccounting.com/trust-registration) and Section 354 compliance simultaneously, the Form 10BD filing is an annual obligation that must be tracked rigorously.
80G Deduction Categories Under Section 354
| Category | Deduction Rate | Qualifying Limit | Examples |
|---|---|---|---|
| Category 1 | 100% of donation | No limit | National Defence Fund, PM’s National Relief Fund, National Foundation for Communal Harmony |
| Category 2 | 50% of donation | No limit | Jawaharlal Nehru Memorial Fund, PM’s Drought Relief Fund |
| Category 3 | 100% of donation | Subject to 10% of gross total income | Government or approved local authority for promoting family planning, approved university/institution for research |
| Category 4 | 50% of donation | Subject to 10% of gross total income | Any other registered RNPO (most common category for general charitable trusts and NGOs) |
Important: For Categories 3 and 4, the qualifying amount is capped at 10% of the donor’s gross total income (adjusted total income after certain deductions). The deduction rate (100% or 50%) is then applied to this qualifying amount. For Categories 1 and 2, there is no such cap.
The deduction under Section 354 (old Section 80G) is not available under the new tax regime. Donors opting for the new tax regime under Section 195 of the 2025 Act cannot claim this deduction. Only those filing under the old tax regime can benefit.
Legal Framework: Old Provisions vs New Provisions
| Aspect | Old Framework (IT Act 1961) | New Framework (IT Act 2025) |
|---|---|---|
| Donor Deduction | Section 80G (with multiple sub-sections and clauses) | Section 354 (consolidated donor deduction provision) |
| NGO Registration | Section 80G(5) registration (separate from 12A/12AB) | Section 354 registration (integrated with RNPO framework under Section 332) |
| Donation Statement | Form 10BD under Rule 18AB | Form 10BD (expected to continue under 2026 Rules) |
| Donation Certificate | Form 10BE (generated from 10BD) | Form 10BE (same mechanism continues) |
| Filing Deadline | 31 May following the FY | 31 May following the FY (same) |
| Cash Donation Limit | Rs 2,000 maximum for eligible deduction | Rs 2,000 (same) |
| Deduction Categories | 100%/50% with/without limit (4 categories) | Same 4-category structure under Section 354 |
| New Tax Regime | 80G deduction not available | Section 354 deduction not available under new regime |
| Penalty for Late 10BD | Rs 200/day (Section 234G) + Rs 10K-Rs 1L (Section 271K) | Same penalty framework (sections renumbered under 2025 Act) |
The substantive framework is carried forward. The key reform is that Section 354 is now integrated into the unified RNPO chapter (Sections 332-355), eliminating the fragmentation that existed when Section 80G operated as a standalone provision.
How Donors Can Claim 80G Deduction: Step-by-Step
- Verify the institution’s registration. Before donating, check that the NGO/trust has valid Section 354 (old 80G) registration. You can verify this on the Income Tax Department’s website or the DARPAN portal. The institution’s PAN, 80G registration number, and validity period should be confirmed.
- Make the donation through eligible modes. Use cheque, bank transfer, UPI, or other digital modes. Cash donations are eligible for deduction only up to Rs 2,000. Donations exceeding Rs 2,000 in cash are not eligible regardless of the institution.
- Collect the donation receipt. At the time of donation, the NGO should issue a receipt mentioning: name of the institution, its PAN, 80G registration number, the donor’s name and PAN, date and amount of donation, and the Pre-ARN (if issued at that point).
- Obtain Form 10BE by 31 May. After the financial year ends, the NGO files Form 10BD and generates Form 10BE. The donor should receive the certificate by 31 May. If not received, follow up with the NGO. Without Form 10BE, the deduction claim may not be accepted.
- Enter details in the ITR. When filing the income tax return (under the old tax regime), enter: the NGO’s name, PAN, 80G registration number, the Form 10BE certificate number, the donation amount, and the deduction category (100%/50%, with/without limit). Ensure the amounts match the Form 10BE.
- Retain records. Keep the donation receipt, Form 10BE, bank statement showing the payment, and any correspondence with the NGO for at least 6 years from the end of the relevant assessment year, in case of scrutiny. For donors using 12A registration (https://www.patronaccounting.com/12a-registration) institutions, cross-check that the institution has both 12A and Section 354 registrations.
Common Mistakes Donors Make
Mistake 1: Claiming 80G under the new tax regime. The deduction under Section 354 (80G) is not available under the new tax regime. If you have opted for the new regime and claim this deduction, it will be disallowed during processing. Ensure you are filing under the old regime before claiming.
Mistake 2: Not obtaining Form 10BE. A donation receipt alone is no longer sufficient proof. The Income Tax Department verifies the claim against Form 10BD filed by the NGO. Without Form 10BE, your claim has no backing in the Department’s system and may be disallowed. Always request Form 10BE from the NGO after 31 May.
Mistake 3: Making cash donations above Rs 2,000. Cash donations exceeding Rs 2,000 are ineligible for deduction under Section 354. Even if the NGO issues a receipt and reports it in Form 10BD, the donor cannot claim a deduction for the cash portion above Rs 2,000. Always use digital or banking channels for larger donations.
Mistake 4: Not verifying the NGO’s registration status. If the NGO’s Section 354 (80G) registration has expired, been cancelled, or was never obtained, the donor cannot claim a deduction. Always verify the registration status and validity period before donating. The 80G registration (https://www.patronaccounting.com/80g-registration) must be current.
Mistake 5: Mismatched amounts. If the amount you claim in your ITR does not match the amount reported by the NGO in Form 10BD (and reflected in your Form 10BE), the Department will flag the discrepancy. Always claim exactly the amount shown in Form 10BE.
Key Takeaways
Section 354 of the Income Tax Act, 2025 consolidates the donor deduction framework for charitable donations, replacing the old Section 80G. The Form 10BD/10BE mechanism-introduced in 2021 under the old Act-continues as the backbone of donor compliance under the new framework.
Donors must obtain Form 10BE from the receiving institution to claim the deduction. The NGO must file Form 10BD by 31 May following the financial year and issue Form 10BE to each donor. The Income Tax Department cross-verifies the claim against the NGO’s reported data-mismatches result in disallowance.
Deductions are available in four categories (100%/50%, with/without qualifying limit) and only under the old tax regime. Cash donations above Rs 2,000 are ineligible. NGOs that fail to file Form 10BD face daily delay fees (Rs 200/day) and penalties (Rs 10,000-Rs 1,00,000).
For both donors and NGOs, maintaining accurate records, timely filing, and proper documentation of Form 10BE is essential for a smooth deduction claim.
Need Help with Donation Compliance or 80G Registration?
Whether you are a donor seeking to maximise your tax deduction or an NGO managing Section 354 registration and Form 10BD compliance, the digital verification system requires accurate data, timely filing, and proper documentation.
Explore our professional accounting services (https://www.patronaccounting.com/accounting-services) for donor advisory, NGO compliance support, Form 10BD preparation, 80G registration renewal, and income tax return filing under the new Act.
For queries, reach out at +91 945 945 6700 or WhatsApp us directly.
