The relief was introduced to give charities a buffer when the Government reduced the basic rate of income tax, to which Gift Aid is linked, in 2008. It is due to expire in April 2011, and an extra year would be worth an estimated £90m to the sector.
Louise Richards, the institute's head of policy and public affairs, said she hoped that other umbrella bodies in the sector would support the proposal.
"Ian Pearson, economic secretary to the Treasury, has promised us a radical reform of tax-effective giving, but that won't happen before the next election," she said.
"We're concerned because 2011 will see the end of transitional relief and it is unlikely that changes will be introduced before that time. Therefore we want the Government to extend transitional relief for a further year. That would indicate their commitment to do something for the sector."