Anonymous Donation: What NGOs Often Get Wrong

2 days ago

6 min read

A donor drops cash in the donation box without leaving a name. A well-wisher transfers money by UPI but the accountant never notes down who it was. A regular contributor asks, "please don't put my name in the annual report."

Ask most NGO finance teams which of these is an "anonymous donation," and you'll usually get the same answer: all of them. That answer is wrong more often than it's right, and getting it wrong has a direct tax cost.

"Anonymous donation" is not about the donor wanting privacy. It is a defined term in the Income Tax Act, 2025 (the Act) and it turns entirely on what the recipient organisation records, not on how the donor chooses to give, or how discreet they want to be.

What the law actually says

Section 355(a) of the Act defines an anonymous donation as a voluntary contribution where the person receiving it does not maintain a record of the identity indicating the name and address of the person making it. The law also lets the Government prescribe further particulars, but none have been prescribed so far. This definition replaces the one in section 115BBC of the Income-tax Act, 1961.

Notice what this definition does not say. It does not say the donation must be in cash. It does not say the donor must be untraceable. It does not say the donor must have insisted on staying unnamed. The entire test is one-sided: did the NGO keep a record of who gave the money? If yes, it is not an anonymous donation in the eyes of the law, no matter how the money came in, and no matter what the donor asked for. If no, it is anonymous, even if the donation came through a fully traceable bank transfer or UPI payment.

This is exactly where the confusion creeps in.

Where the mix-up usually happens

Let's carry one example through. ABC Foundation, a registered non-profit organisation (RNPO), receives ₹40,00,000 in donations during the year, made up of:

₹15,00,000 by cheque and bank transfer, from donors whose name, address, and PAN are captured in the donation receipts.
₹20,00,000 by UPI, where the RNPO notes the UPI handle and amount, in some cases, the payer's name, but ABC Foundation does not record the donor's address anywhere.
₹5,00,000 in cash, collected in a donation box at an event, with no register of who contributed what.

A common instinct is to say the cash collection alone is the "anonymous" component, since UPI payments are traceable through the bank. That instinct is incorrect. Traceability by the bank is irrelevant; what matters is whether ABC Foundation itself has recorded the donor's identity. Since ABC Foundation holds no address for these donors, and at best a name picked up from the bank statement, that ₹20,00,000 is also an anonymous donation under the Act, exactly like the ₹5,00,000 cash. A UPI ID or transaction reference is not a name and address. Only ₹15,00,000 with proper donor records is outside the definition.

This is the point RNPOs consistently miss: a digital, fully bank-traceable donation is still "anonymous" for tax purposes if the organisation didn't independently capture and retain the donor's particulars at its own end.

Equally, the reverse mix-up happens too. If a long-time donor gives ₹1,00,000 by cheque and simply asks not to be named in the annual report or on a donor wall, that is not an anonymous donation, since the identity is on record with the RNPO, even though the public doesn't get to see it. Public anonymity and legal anonymity are two different things, and only the second one matters to the tax department.

The tax cost

Under section 337 (Table, Sl. No. 1), anonymous donations received by an RNPO are treated as specified income and taxed at a flat 30% under section 334(1)(a), plus 4% cess and surcharge where applicable. The tax applies only to the amount exceeding the higher of:

₹1,00,000, or
5% of the total donations received during the tax year.

"Total donations" means every voluntary contribution received, including ordinary donations, corpus donations, grants received as voluntary contributions, and the anonymous donations themselves (section 355(d)).

Applying this to ABC Foundation: total donations are ₹40,00,000, so 5% works out to ₹2,00,000, which is higher than the flat ₹1,00,000 threshold. Anonymous donations total ₹25,00,000 (₹20,00,000 UPI + ₹5,00,000 cash). The exempt slice is ₹2,00,000, leaving ₹23,00,000 as specified income. Tax at 30% is ₹6,90,000, or ₹7,17,600 with 4% cess (surcharge, if applicable, is extra). This is over and above the organisation's regular tax computation on the rest of its income.

The cost doesn't stop at the tax. The ₹23,00,000 excess never becomes part of regular income. So money spent out of it doesn't count as application of income (section 341(4)), and the 15% accumulation isn't available against it. Only the ₹2,00,000 within the limit stays in regular income and is treated like any other donation.

That is a significant, avoidable cost, and it arose purely from a recordkeeping gap on digital donations that were, ironically, perfectly traceable by the bank.

The exemption for religious and religious-cum-charitable trusts

The above-discussed taxability provision under the Income Tax Act, does not apply to an RNPO created or established wholly for religious purposes, or wholly for charitable and religious purposes, with one carve-out: if a religious-cum-charitable trust receives an anonymous donation with a specific direction that it be used for a university, educational institution, hospital, or other medical institution it runs, that portion loses the exemption and is taxed like any other anonymous donation. So a temple trust set up wholly for charitable and religious purposes is outside the 30% charge on its general anonymous donations. Those donations still form part of its regular income and follow the usual application rules. But an anonymous donation it receives specifically for a hospital it runs is taxed like any other. Whether an organisation counts as "wholly" religious, or "wholly" charitable and religious, depends on its constitution documents and its actual activities, so take advice before relying on this exclusion. We have written about a Bombay High Court ruling on this point, involving the Sai Baba Sansthan Trust, Shirdi, here.

The same rule also applies to small universities, educational institutions and hospitals that claim exemption under Schedule VII (item 19) of the Act. These are the institutions that were covered by section 10(23C)(iiiad) and (iiiae) of the 1961 Act.

The practical fix

The way around this is simple and entirely within the RNPO's control: capture donor identity at the point of receipt, for every mode of payment, whether cash, cheque, UPI, or online gateway. A basic register or receipt format that records the donor's name and address (ideally the complete postal address, since it is not settled whether a partial address is enough) against every contribution , however small, converts what would otherwise be "anonymous" into fully compliant donation income. This is a process discipline issue, not a legal grey area, and it costs far less than the 30% tax that follows from not doing it.

One clarification worth flagging: the law only insists on name and address. The absence of a PAN does not, by itself, turn the contribution into an anonymous donation.

PAN still matters elsewhere, though:

Donors need it to claim their deduction under section 133 (formerly section 80G), which the RNPO reports in Forms 113 and 114.
Rule 187 requires the donor's PAN and Aadhaar (if available) in the record of corpus donations.

In practice, that means:

Making name and address mandatory fields on your payment gateway and on the landing page behind any QR code.
Reconciling UPI and bank credits every month and following up with donors for missing details.
Keeping donation-box and event cash collections within the permissible limit, and checking your position through the year, because the 5% limit moves as total donations change.
Remembering that cash is not automatically anonymous if the name and address are recorded. But receiving ₹2,00,000 or more in cash from one person in a day breaches section 186 (formerly section 269ST), and the penalty is equal to the amount received (section 451). Donors also get no section 133 deduction for cash donations above ₹2,000.
Counting a corpus donation received without a name and address as an anonymous donation, like any other.

The takeaway

An anonymous donation isn't about cash versus digital, or about whether the donor wants to be publicly credited. It comes down to one question: does the NGO's own record show who gave the money? Answer that correctly at the point of collection, and the classification, along with the 30% tax exposure, never becomes a year-end surprise.

Donation classification is just one of many areas where the line between "technically compliant" and "actually compliant" gets blurred in day-to-day NGO accounting. In our NPO Accounting & Compliance Course, we walk participants through this scenario and several others, including voluntary contributions, corpus donations, and grant accounting, using the same practical, example-led approach as this article, so that the concepts translate into how your books are actually maintained.

Disclaimer: This article explains how "anonymous donation" is defined and taxed under the Income Tax Act. It is for general awareness only and does not constitute legal or tax advice. Please consult your chartered accountant or other professional adviser before applying this to your organisation's specific facts.