The concept of daana is unique to Indian culture. Daana was considered to be one of the three pillars of an ideal society. It signifies the duty of sharing one’s prosperity with one’s community and is enshrined in our shastras. As a sacred duty, daana was not expected only of kings and wealthy people—it was seen as a necessary societal responsibility, which had to be fulfilled by each individual. According to the world’s leading report on global generosity, the CAF World Giving Index 2015, in 2014, more than 334 million Indians helped a stranger, more than 183 million gave money and more than 156 million volunteered time. India has more people who help strangers, donate money or volunteer their time for a good cause than any other country on Earth. However, while India’s large population means it has a huge number of people performing acts of generosity, the proportion of people who give is lower than in many other countries. India ranked as the 106th most generous country overall, just behind Brazil, and the eighth out of eight countries included from Southern Asia.
A year after Prime Minister Narendra Modi made a call to the upper-class to give up their cooking gas subsidy, 8.22 million consumers responded to the “Give it Up” campaign and surrendered an annual LPG subsidy worth Rs 5,000, helping the government save Rs 4,166 crore. This initiative provided a choice to the consumers and helped create an environment of giving and an opportunity was given to people towards nation building. However, there is still a lot more we must do. The potential scope for philanthropy in India remains vast, with the country facing many unaddressed social development problems. How do we create and nurture a culture and an enabling environment for structured and effective giving, and giving strategically for sustainable long term impact? One that encourages, rewards and celeberates giving behaviours.
One large factor or enabler can be the governing and taxation structures of the country, which needs to be conducive and encouraging about rewarding charitable giving.
In keeping with global practices in many OECD countries, contributions made for charitable purposes in India are eligible for tax exemptions under the Income Tax (I-T) Act, 1961, under Clauses 80G(50%) and 35AC (100%). Tax benefits may not be the primary motivation for giving, but do play a significant part in encouraging people to give money for philanthropy. These exemptions influence donor decisions, be they individuals or companies.
Five years ago, when Bain & Co’s first India Philanthropy Report was published, India had a nascent philanthropic environment. The ecosystem for active and sustained giving was still developing. Only 14% of the adult population across India donated cash, and some 12% donated their time. For an entire year, philanthropic activity received a mere 426 mentions in the media. In the five years since, the philanthropic space has been completely transformed. Today, a deeper pool of donors donates larger amounts of money to a greater number of players in the nonprofits sector.
Thinkthrough Consulting analysed the revenue foregone documents of Union Budgets for the last few years. The data indicates a sharp increase in money given to charitable bodies by corporate entities. Donations given by companies in FY14 under 80G added up to Rs 1,013.4 crore, while those by individuals came to Rs 737.4 crore. In FY15, these amounts jumped to Rs 1,984.52 crore for companies and Rs 876.28 crore for individuals. Given that the average individual donation amount is much smaller than a corporate, say Rs 3,000 per individual, let’s do the math and marvel at the sheer number of more Indians who are giving and sharing what they have.
Similarly, contributions made under the 35 AC (which entitles donors to a 100% exemption) have seen a sharp increase in the last couple of years—from Rs 143.5 crore in FY14 to Rs 747.34 crore in FY15.
However, the Ministry of Finance has announced in the FY16 budget that this clause 35AC will be slowly phased out, beginning FY17.
This tax law is a crucial incentive that gets people to give, and give deeper than they otherwise would. Limiting it or ending it would turn away funds from nonprofits at a time when charities are already struggling to meet increased demand from poor populations for welfare programmes and services. Its withdrawal by the Finance Ministry disincentivises such giving.
Globally, tax exemptions exist to encourage more people to give money. In the United States, tax laws at the federal and many state levels encourage individuals and businesses to give to charity by providing an itemised deduction or tax-credit. By allowing those who give generously to claim a deduction at the same rate at which taxes are paid, their long-standing tax policy has ensured that such gifts are not subject to additional tax. For every $1 a donor can deduct, the public receives approximately $3 of benefit. No other tax provision generates that kind of positive public impact.
The UK, also, has a number of schemes to help residents make tax efficient charitable donations. For instance, the Gift Aid scheme allows charities to claim back tax paid to the government on goods sold in charity shops, adding nearly a third to the value of a single donation. Taxpayers can also gift through payroll, giving directly from their gross pay and getting immediate tax relief at the highest rate for which they qualify. Furthermore, gifts to charity are exempt from inheritance tax. Australia too is setting a corporate culture of giving, with “workplace giving” being a game changer for employees and employers alike. Companies match the donations given by employees, emphasising on collective impact.
So to conclude; rather than limiting incentives, the Narendra Modi government should explore opportunities to expand the giving that allows charitable organisations to improve lives every day. After all, public good is a cause that every citizen has a stake in and needs to contribute to, and not only the state.
Komal Ganotra is Director of Child Rights & You, Delhi