Redefining Tax Deductions for Scientific and Rural Advancement : Clause 135 of the Income Tax Bill, 2025 vs. Section 80GGA of the Income Tax Act, 1961

Clause 135 Deduction in respect of certain donations for scientific research or rural development.

Income Tax Bill, 2025

Introduction

Clause 135 of the Income Tax Bill, 2025, proposes a statutory framework for deductions in respect of certain donations made for scientific research or rural development. This clause is intended to replace or update the existing provisions u/s 80GGA of the Income Tax Act, 1961, which has historically provided similar deductions. The legislative context for such provisions is grounded in the policy objective of incentivizing voluntary contributions towards scientific, social science, statistical research, and rural development, thereby aligning private financial incentives with national developmental priorities.

The significance of these provisions lies in their dual role: stimulating philanthropic engagement from taxpayers and channeling private resources into sectors critical for sustainable development. Over the decades, Section 80GGA has undergone several amendments to reflect evolving policy priorities, compliance mechanisms, and administrative oversight. With the introduction of Clause 135 in the draft Income Tax Bill, 2025, it is crucial to analyze the similarities, differences, and potential implications for stakeholders, especially in light of contemporary compliance, transparency, and accountability demands.

Objective and Purpose

The primary legislative intent behind both Clause 135 and Section 80GGA is to provide tax deductions to assessees making eligible donations toward scientific research and rural development. This is rooted in the recognition that such activities, although not profit-driven, are essential for national progress and require sustained financial support beyond governmental funding.

The policy considerations include:

• Encouraging private sector and individual participation in research and rural development.
• Ensuring that contributions are directed toward approved and credible institutions or projects.
• Providing a transparent and administratively efficient mechanism for availing deductions.
• Balancing the need for incentivization with safeguards against misuse or diversion of funds.

Historically, these provisions have also reflected the government's intent to support not just scientific research but also social sciences, statistical research, conservation, afforestation, and poverty eradication, with periodic amendments expanding or refining the scope of eligible donations.

Detailed Analysis of Clause 135 of the Income Tax Bill, 2025

1. Scope of Deductible Payments

Clause 135(1) delineates the types of donations that qualify for deduction:

• Scientific Research: Donations to research associations, universities, colleges, or other institutions approved for scientific research (referencing section 45(3)(a)(i) for approval criteria).
• Social Science or Statistical Research: Donations to research associations, universities, colleges, or other institutions approved for research in social science or statistical research (referencing section 45(3)(a)(ii)).

This structure mirrors the corresponding provisions in Section 80GGA(2)(a) and (aa), which also allow deductions for donations to approved entities engaged in scientific or social science/statistical research.

Notably, Clause 135 omits explicit reference to donations for rural development, conservation of natural resources, afforestation, and urban poverty eradication, which are present in Section 80GGA. This suggests a narrowing of the scope, focusing exclusively on research-related donations, unless these aspects are addressed elsewhere in the new Bill.

2. Exclusion Criteria

Clause 135(2) imposes two significant restrictions on eligibility for deduction:

• Business Income Exclusion: No deduction if the assessee's gross total income includes income chargeable under "Profits and gains of business or profession."
• Cash Contribution Limit: No deduction for cash contributions exceeding two thousand rupees.

These restrictions are directly analogous to Section 80GGA(3) and (2A), respectively. The rationale is to prevent double deduction (since business-related donations may already be eligible u/s 35) and to curb abuse through cash transactions, thereby promoting traceability and accountability.

3. Continuity of Deduction Despite Withdrawal of Approval

Clause 135(3) clarifies that deduction shall not be denied merely because the approval granted to the recipient entity is withdrawn after the donation is made. This is a significant taxpayer protection, ensuring that bona fide donors are not penalized for subsequent regulatory actions. Section 80GGA contains similar explanations for both research (Explanation to sub-section (2)) and rural development (Explanation to clause (b)), reinforcing this principle.

4. Procedural Compliance and Information Reporting

Clause 135(4) stipulates that deduction will be allowed based on information furnished by the payee (recipient) to the prescribed income-tax authority, subject to verification as per the Board's risk management strategy. This is a clear move towards data-driven compliance, leveraging third-party reporting to reduce fraudulent claims and enhance transparency.

Section 80GGA, as amended by the Finance Act, 2020, incorporates an almost identical provision, requiring deduction claims to be matched with information furnished by the payee. This reflects a broader trend in Indian tax law towards real-time information reporting and cross-verification (akin to TDS/TCS regimes and Form 26AS for other transactions).

Comparative Analysis with Section 80GGA of the Income Tax Act, 1961

Scope of Eligible Donations

Section 80GGA is broader, covering:

• Donations for scientific research (to research associations, universities, colleges, institutions approved u/s 35(1)(ii));
• Donations for social science or statistical research (approved u/s 35(1)(iii));
• Donations for rural development (to associations/institutions approved u/s 35CCA);
• Donations for conservation of natural resources or afforestation (approved u/s 35CCB);
• Donations to government-notified funds for afforestation, rural development, or urban poverty eradication.

Clause 135, by contrast, is limited to scientific and social science/statistical research. It omits explicit reference to rural development, conservation, and afforestation-unless these are covered under a different clause in the 2025 Bill.

Approval Mechanism

Both provisions require that the recipient institution be approved under relevant sections:

• Section 80GGA refers to approvals u/s 35(1)(ii)/(iii), 35CCA, 35CCB, etc.
• Clause 135 refers to approvals for the purposes of Section 45(3)(a)(i)/(ii) (presumably the corresponding provisions in the new Act).

The underlying principle is that only donations to vetted, credible institutions qualify for deduction.

Exclusion of Business/Professional Income

Both provisions categorically deny deductions to assessees whose gross total income includes business or professional income, to avoid double deductions (since business entities can claim such expenses u/s 35 or analogous provisions).

Cash Contribution Limit

Section 80GGA(2A) and Clause 135(2)(b) both prohibit deductions for cash donations exceeding Rs. 2,000, reflecting a policy to promote traceable, non-cash transactions and curb abuse.

Protection Upon Withdrawal of Approval

Section 80GGA contains Explanations ensuring that deductions are not denied if the recipient's approval is withdrawn after the donation is made. Clause 135(3) carries forward this protection, providing legal certainty for donors.

Mode of Claim and Compliance

Section 80GGA (Explanation inserted by the Finance Act, 2020) and Clause 135(4) both require that deductions be allowed on the basis of information furnished by the payee to the prescribed authority, subject to risk-based verification. This marks a shift from paper-based certificates to electronic, institution-driven reporting, reducing administrative complexity and the risk of fraudulent claims.

Overlap and Exclusivity of Deductions

Section 80GGA(4) prohibits double deduction for the same payment under any other provision of the Act. Clause 135 does not explicitly mention this, but such anti-overlap provisions are typically present elsewhere in the Act to prevent double benefits.

Additional Categories u/s 80GGA

Section 80GGA includes several additional categories:

• Donations to public sector companies, local authorities, or associations approved by the National Committee for eligible projects/schemes u/s 35AC (now omitted in the Income Tax Act, 1961);
• Donations for conservation of natural resources or afforestation (Section 35CCB, now sunsetted);
• Donations to specific government-notified funds.

Clause 135 does not cover these, suggesting a policy decision to streamline or restrict the deduction regime.

Potential Ambiguities and Issues

• Omission of Rural Development

  • The most striking difference is the omission of rural development, afforestation, and conservation from Clause 135. Unless these are covered elsewhere in the new Bill, this could signal a narrowing of the deduction regime, potentially impacting funding for these sectors.

• Reference to Section 45(3)(a)

  • Clause 135 refers to approvals for the purposes of Section 45(3)(a)(i)/(ii). The interpretation of these cross-references depends on the structure of the new Act, and clarity will be essential to avoid confusion.

• Absence of Specific Provisions for Overlap

  • Clause 135 does not explicitly prohibit double deduction for the same payment under other provisions, though such a rule may exist elsewhere in the Bill. Explicit mention would enhance clarity.

• Compliance Dependence on Recipient Institutions

  • By shifting the compliance burden to recipient institutions (for reporting donations), there is a risk that inadvertent non-reporting by recipients could prejudice donors. Mechanisms for rectification or appeal may be necessary.

Practical Implications

For Taxpayers:

• Non-business assessees continue to be eligible for deductions on donations to approved research institutions, subject to compliance with payment modes and reporting requirements.
• Business assessees must rely on other provisions (such as Section 35 or its successor in the new Bill) for deductions relating to scientific research.
• The restriction on cash donations above two thousand rupees necessitates electronic or traceable payments, enhancing transparency.
• The shift to third-party reporting (by the recipient institution) means donors must ensure the payee complies with reporting obligations to avoid disallowance.

For Recipient Institutions:

• They must maintain approval status and comply with reporting requirements to the income-tax authorities.
• The risk management strategy may subject them to increased scrutiny and verification.

For Tax Administrators:

• Enhanced data-driven oversight and risk management strategies will facilitate targeted verification, reducing administrative burden and potential for abuse.

Potential Issues:

• The narrowing of eligible donations may reduce the incentive for contributions to rural development or conservation unless covered elsewhere.
• Increased compliance and reporting requirements may burden smaller institutions.

 

Comparative Analysis

Aspect	Clause 135 of the Income Tax Bill, 2025	Section 80GGA of the Income Tax Act, 1961	Remarks
Eligible Donations	Research associations, universities, colleges, or institutions for scientific/social science/statistical research	Same as left, plus rural development, conservation, afforestation, public sector companies for eligible projects, poverty eradication funds	Clause 135 narrows the scope; Section 80GGA is broader
Approval Requirement	Approval u/s 45(3)(a)(i)/(ii)	Approval u/s 35(1)(ii)/(iii), Section 35CCA, Section 35CCB, Section 35AC	Similar for research; Section 80GGA covers more categories
Withdrawal of Approval	Deduction not denied if approval withdrawn after payment	Same	Both protect taxpayer from post-payment withdrawal
Exclusion for Business Income	No deduction if business/profession income included	Same	Prevents double deduction
Cash Payment Restriction	No deduction for cash contributions > Rs. 2,000	Same	Anti-abuse measure
Procedural Requirements	Based on information furnished by payee; subject to risk management verification	Same	Modern compliance approach
Anti-Double Deduction	Not specified	Explicitly stated	Potential gap in Clause 135 unless covered elsewhere

Conclusion

Clause 135 of the Income Tax Bill, 2025, represents a streamlined and targeted approach to tax deductions for donations toward scientific and social science/statistical research, closely mirroring the core framework of Section 80GGA but with a narrower scope. The exclusion of explicit references to rural development, conservation, and poverty eradication funds may reflect a policy realignment or a consolidation of such incentives under new or different statutory provisions.

The procedural mechanisms, cash payment restrictions, exclusion for business assessees, and reliance on third-party reporting reflect contemporary best practices in tax compliance and administration. However, the narrowing of eligible donations and potential gaps (such as the absence of an explicit anti-double deduction clause) may have substantive implications for both donors and recipient organizations. Stakeholders must carefully monitor the final form of the Bill and any related provisions to ensure continued compliance and to optimize the use of available tax incentives for research and development activities.

Going forward, clarity on the treatment of rural development, conservation, and poverty eradication donations under the new regime will be essential, and further judicial or administrative guidance may be warranted to address interpretative ambiguities and transitional issues.

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Full Text:

Clause 135 Deduction in respect of certain donations for scientific research or rural development.

 

Dated: 17-4-2025