80 G for donation

Situation Recap:

• You issued an 80G receipt for the full grant of Rs. 20 lakhs upfront.

• Spent only Rs. 15 lakhs over 3 years.

• Donor wants the unspent Rs. 5 lakhs refunded.

1) Can you refuse to return the unspent amount?

• Ethically and practically, you should consider returning the unspent amount because:

  • The donation was given for a specific project (earmarked funds).

  • If the donor requested a refund of unspent funds, it implies the funds were conditional.

  • Holding onto unspent funds without spending or returning may affect your NGO’s credibility and relationship with donors.

• Legally, if the grant agreement or terms with the donor mention that unspent funds must be returned, you should comply.

• If no such clause exists, it may be at your discretion, but it’s good practice to honor such requests.

2) Tax implications if you refund the balance amount

• For your NGO (the Trust):

  • The refunded amount (unspent Rs. 5 lakhs) will be considered application of funds returned.

  • If the refunded amount was earlier shown as donation income, you may need to adjust your accounts accordingly.

  • There is no direct tax liability on the NGO for returning unspent funds, but proper accounting is essential.

• For the Donor:

  • The donor has claimed 80G tax exemption on the full Rs. 20 lakhs.

  • By refunding Rs. 5 lakhs, ideally, the donor should adjust their tax claim proportionately.

  • Donor should consider this refund while filing their income tax return to avoid any issues with exemption claims.

Best Practice:

• Issue a corrective receipt or refund letter for the Rs. 5 lakhs.

• Keep proper documentation of refund and communication with donor.

• Adjust your accounts for the refunded amount.

• Inform donor to adjust their 80G claim proportionally.

Summary: