Is Obtaining PAN of Donors a Necessity?

As a general rule of the thumb Income tax professionals and practitioners have always suggested that NGOs should obtain the Permanent Account Number (PAN) of their donors, even if the donation is made by cheque exceeding Rs. 50,000/-. We agree that there is no specific mandate under the Income tax Act 1961. However, professionals and practitioners suggest this as a requirement and arrive at this figure of Rs. 50,000/- based on inference [ITR-7 and Section 13(3)(b)] and practical experiences (during tax assessment).

 

Very recently a friendly debated erupted within the sector whether professionals are putting an unwarranted compliance burden on NGOs or worse still scaring donors away.

We therefore wrote to three Mumbai based Chartered Accountants in this matter in order to get a sense of what each individual expert felt in this matter or experiences in actual practice and these were the responses that we received. We thank each one of them for their insight and input.

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The geneses of obtaining PAN of donors contributing more than Rs. 50,000 has arisen from the following: 

·        Section 13(3)(b) of the Act provides that any person who has made contribution more than Rs. 50,000 is said to be a person who has made substantial contribution to the charitable institution.

·        Part C of Schedule K of the Income-tax return form (ITR-7) requires the institution to state name, address and PAN of the person who has made substantial contribution to the charitable institution. 

Ironically an institution is not obligated by the Act to obtain donor’s PAN, but, is required to mention PAN in the income-tax return form which is prescribed under the same Act!

Actually, all that the Act requires a charitable institution to do is to obtain only the name and address of the donor. Section 115BBC of the Act dealing with anonymous donation is very clear on this. Incidentally, sub-section (3) of that section also grants powers to the government to introduce any other particulars of the donor besides name and address that a charitable institution will be required to obtain. Presently, the government has not prescribed any other particulars to be obtained. If the government intends, it can very well prescribe donor’s PAN as one of the requirements to be obtained by charitable institutions. 

We believe it would be a good practice to obtain donor’s PAN at least for donations above a particular threshold. It just adds to the optics and creates genuineness about a transaction.   

Milind Gandhi

Gandhi & Associates

Chartered Accountants

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I have instructed my clients to maintain details for donations of Rs. 10,000/- and more, in a separate excel file. This file is maintained in the course of the year and kept updated at all times. Name of the donor, address, PAN is all that is requested. Most donors comply.

During assessments, the questionnaire we receive requires these details. Though the notice does not mention any limit, the AO upon request accepts details for donation of Rs. 10000/- and above. Thus I consider this a threshold limit. This has been my experience. 

The ITR requires disclosure of Rs. 50,000/- and more, because they are considered "persons who have made substantial contributions to the Trust” u/s 13(3)(b). Since my threshold is Rs. 10000/-, these details are already part of records maintained.

Sundeep Wagh

S. M. Wagh & Co.

Chartered Accountants

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Under ITR it is mandatory to provide the PAN in order to cross verify the information.   In the interest of transparency and identification of donors it is advisable to quote PAN. It may not be mandatorily enforced but should be implemented voluntarily for self regulation and governance sake.

Sanjay Mehta

Akkad Mehta & Co

Chartered Accountants

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