Philanthropic donations can pay you monetarily, finds think tank report

With Budget 2023-24 just months away, a 2021 study based on research of tax incentives and philanthropy in 12 countries, by the Centre for Social Impact and Philanthropy (CSIP) at Ashoka University and the Centre for Budget and Governance Accountability (CBGA), a think tank focusing on public policies and government finances in India, reached interesting conclusions.

When an individual makes a charitable donation, he/she incurs a cost or a price. When there are no tax incentives, the price of giving is the same as the monetary value of the donation. 

Tax incentives reduce a donor’s tax outgo or result in tax savings for the donor. By reducing the tax payable by the donor, tax incentives help reduce the price of giving and thereby, arguably, motivate philanthropic giving.

Except for France and South Korea, all countries provide tax incentives for individuals in the form of a deduction from taxable income. France and South Korea provide tax incentives in the form of credits. The UK has the most unique and complex design of tax incentives. One scheme, the Gift Aid, which is also the most popular scheme in the UK, is a combination of direct deduction and a match donation by the government. Other tax incentive schemes for individuals (such as Payroll Giving and inheritance tax) are offered in the form of a deduction.

Of the 12 countries, 9 provide incentives in the form of a deduction. Among these, Singapore has the highest rate of incentive at 250 per cent, while Bangladesh has the lowest, at 15 per cent.  India offers two different rates of deduction on its most popular tax incentive scheme (also known as the 80G scheme), 50 per cent and 100 per cent, depending on the recipient. The 50 per cent deduction is applicable mainly when donations are made to non-profit organisations, while 100 per cent applies when the donation is made to select government-affiliated entities.

Source: Adaptation of original work produced by Ashoka University’s CSIP, CBGA — a think tank