New tax regime disincentivizes charity donations, says study

What is the news? 

Budget of 2020 option introduced an optional tax regime for personal income tax. 

What was this optional tax regime? 

Under this a taxpayer can choose between two structures. One structure, the older one, has higher rates and incentivizes philanthropic giving. The other one has lower rates but does not incentivize donations. 

These changes were analyzed in a study conducted by Ashoka University and Centre for Budget and Governance Accountability (CBGA).  

What are the issues highlighted by the study? 

Study concludes that these changes, coupled with the lowering of rates of personal income tax and corporate income tax over time, have disincentivised donations for charity.   

Note-Section 80G of the Income Tax Act provides deduction from one’s income for donating to specified charitable institutions. 

What needs to be done? 

India should reintroduce inheritance tax and wealth tax. 

This will generate additional tax revenue and will also increase the resources of the charitable sector 

These can act as one of the most effective policy instruments against inequality specially in the pandemic period. 

Source– This post is based on the article “New tax regime disincentivizes charity donations, says study” published in Business standard on 21st Jan 2022.