Charities or donations are expenses for the business firm. Though, it is not the business expenditure but the business entities are also part of the society and any expenditure done for the welfare of the society, will be treated as business expenditure. These expenses may be in cash or in kind. The donation can be given to the following institutions:-

  1. Political Parties.
  2. Religious Institutions.
  3. Educational Institutions.
  4. Hospitals.
  5. Social Welfare Societies.
  6. NGOs
  7. Individuals etc.

Though, charities or donations are the expenditures for the business firm but as per Indian Income Tax Act, few donations are allowed 100% as business expenditure and some donations are allowed only 50% as business expenditure. The nature of donations are notified by the Central Government from time to time.

Accounting Treatment of Charity & Donation Expenses

Debit:-        Charities & Donations A/c

Credit:-      Cash A/c


Bank A/c

Note:- Receipt must be enclosed with the voucher to avail the exemption from the income tax. After verifying the receipt, the income tax department may allow the appropriate exemption.

Treatment of Donations and Charities Account in final accounts

Donations and Charities are the indirect expenses for the business firm. That is why these expenses are shown in expenses side of Profit and Loss Account.