Impact of Demonetization on the Social Sector and NGOs

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The Government’s ban of Rs 500 and Rs 1000 notes marks a pivotal point for the digital economy, for CSR and for the nonprofit sector and considerably hastened it. India’s social sector is being fired head first into the digital age and it’s going to change life as we know it for NGOs and CSR.

Impact on CSR funding

The demonetization is going to adversely affect NGOs.  The individual donation will decline as there will not be any cash strapping. As a result of this reliance on CSR funding will increase, which is already exceeding Rs. 5,000 crores.

Companies, who exceed certain limits of Income, net wealth, or net profit share have to spend 2% of their net profit on CSR every year. Sectors like jewelry, luxury products, and real estate have been affected adversely by this De-monetization move. So there will be an adverse effect on CSR funding. As CSR funding is based on an average of past three years’ annual net profit, so any marginal decline can be counterbalanced by growth in another sector of Indian economy i.e. Wallet payments .

 

NGOs must accelerate online giving transition

NGOs should shift towards online payments by investing significantly in digital channels. All NGOs should instantaneously start setting up mobile friendly websites, online payment gateways so that they can accept the online donation.

Also Read: Demonetisation- Case Studies of Success and Failure from Other Parts of the World

This online transition will reduce dependence on costly and ineffective offline methods such as door to door fundraising, call center operations, and event-based fundraising. It will be a long-term positive step for the NGO.

Momentary boost for Religious institutions

As per current Income tax regulation, the religious charitable institution is allowed to accept the anonymous donation. People may donate their black money to these institutions, resulting in a temporary surge of donations for the Religious Charitable institution.

Effect on Non-religious charitable institutions

As Per Section 115BBC“The income-tax payable shall be the aggregate of the amount of income-tax calculated at the rate of 30% on the aggregate of anonymous donations received in excess of the higher of the 5% of total donations received by the assessee or 1 lakh rupees.

We can also see a surge in non-religious NGOs anonymous donations but they will likely be within the specified limits.

Misuse of non-profit will Decrease

NGOs cannot be used as vehicles for money laundering, which will improve the reliability of the industry as a whole. Unethical practice of giving donations in Check and then returning 80-90% of the amount of cash can be stopped. Optimistically, this will not just be a short-term change.


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