Giving Without Gain: The Impact of a Changing Tax Landscape on Philanthropy

Charitable giving in India has long stood at the intersection of kindness and smart financial planning. For years, donors supported causes close to their hearts while also enjoying tax benefits under Section 80G of the Income Tax Act. However, policy shifts following the introduction and growing adoption of the new tax regime are reshaping this landscape in ways that could significantly affect both donors and the non-profit sector in India.

The New Tax Regime: A Double-Edged Sword

Introduced in FY 2020–21 and made the default option for ITR filers from FY 2023–24 onwards, the new tax regime was positioned as a simpler alternative, with lower tax rates and fewer exemptions. On paper, this seems appealing. In practice, however, it comes at a cost: the forfeiture of many deductions – including those under Section 80G for charitable donations.

According to the Income Tax Department:

In the Assessment Year 2024–25, 72.4% of the 7.28 crore tax returns were filed under the new regime. Yet, many taxpayers remain unaware that by defaulting to the new regime, they lose the ability to claim deductions on charitable donations. This policy shift subtly but powerfully disincentivizes giving, especially among those who once gave partly to optimize their tax burden.

Why This Matters for Charitable Giving?

The impact of this shift is already being felt. A Ministry of Finance report revealed that in AY 2021–22, over 6 crore taxpayers filed returns, and around 1.2 crore claimed deductions under Section 80G. By FY 2023–24, claims under 80G had dropped by 35%, signalling a major behavioural shift driven by the adoption of the new regime.

This trend has real implications. Many NGOs – particularly small and medium-sized organizations rely heavily on individual donations to fund their operations. The erosion of tax incentives could lead to significant funding gaps, undermining their capacity to deliver services and expand outreach.

Section 80G: A Closer Look at What’s at Stake

For taxpayers who still choose the old regime, Section 80G remains a powerful tool. It offers several tiers of tax benefits:

• 100% Deduction without Limit: Donations to funds like the National Defence Fund or the Prime Minister’s National Relief Fund qualify.
• 50% Deduction without Limit: Contributions to funds such as the Prime Minister’s Drought Relief Fund or the National Children’s Fund.
• 100% Deduction (Capped at 10% of Adjusted Gross Total Income): Applies to donations for specific causes, such as family planning or contributions to the Indian Olympic Association.
• 50% Deduction (Capped at 10% of Adjusted Gross Total Income): Covers most registered NGOs and charitable trusts.

These provisions served as a strong motivator for individuals to integrate philanthropy into their financial planning. Their diminished role under the new regime makes giving purely an act of goodwill with no tangible financial benefit.

What Needs to Be Done: A Roadmap to Sustain Charitable Giving

Increase Public Awareness:

• Educate taxpayers: It is imperative to launch targeted awareness campaigns through digital platforms, financial advisory services, and corporate HR departments – to inform individuals about the differences between the old and new regimes, especially the implications for Section 80G benefits.
• Leverage financial literacy programs: Financial planning seminars, tax filing assistance services, and government-led outreach initiatives can integrate information about charitable deductions to help citizens make informed choices.
• Simplify comparison tools: The government and fintech platforms should develop and promote easy-to-use tools that allow individuals to compare the financial impact of both tax regimes including potential losses in charitable deductions so they can align their tax strategy with their philanthropic values.

Policy Re-evaluation:

Reforms that simplify taxation should not come at the cost of civic engagement. The removal of incentives for charitable giving under the new regime has far-reaching consequences that require thoughtful reconsideration.

• Reintroduce targeted deductions: The government can consider introducing a limited set of deductions such as for donations to approved charitable institutions even within the new regime. This would encourage continued giving without overcomplicating the tax structure.
• Benchmark global practices: Many developed and developing nations continue to provide tax benefits for philanthropy regardless of tax structure. India can draw lessons from countries like the U.S., Singapore, the UK, and Canada, where charitable deductions are maintained as part of their efforts to strengthen civil society.

Support for the Non-Profit Sector:

• Alternative funding mechanisms: Government grants, CSR initiatives, and impact investment platforms can help bridge the funding gap. Dedicated public-private partnership models can also be explored to ensure NGOs remain adequately funded.
• Capacity-building and training: NGOs must be equipped with the tools to diversify funding sources, including skills in grant writing, digital fundraising, donor management, and impact communication. Governments and large foundations should invest in training programs and support services for NGO sustainability.
• Establish a national philanthropy strategy: India can benefit from a structured approach to philanthropy that aligns government policy, corporate responsibility, and citizen giving to create a cohesive support system for the voluntary sector.

Giving should be a selfless act, but there’s nothing wrong with policies that encourage it. Tax incentives like Section 80G deductions have played a vital role in channelling private contributions into the public good. As the new tax regime takes deeper root, it’s critical to evaluate its unintended consequences on India’s charitable ecosystem—and find ways to ensure that giving remains not just noble, but also viable.

Regards,
Tushar Hemrajani
Senior Research Analyst, HYNGO