There are two phases of life human beings go through, childhood, which is filled with joy and subject to experimentation and adulthood, where we spend most of our time chasing money. Our pursuit for money often leads us to work and save harder so that we can lead a comfortable lifestyle. Living in a democracy like India means that we all end up paying taxes, taxes which are used to develop the infrastructure of the nation. It is true that these taxes pinch our wallets at times, eating a chunk of our hard earned money, but there are ways to reduce your tax burden, save money and feel good about contributing to the society, donations. Certain donations can go a long way in reducing your tax liability, thanks to Section 80G of the IT Act (Income Tax Act) which is specifically designed to offer peace of mind and comfort to taxpayers.
Section 80G of Income Tax Act:
Section 80G of the Income Tax Act primarily deals with donations made towards charity, with an aim to provide tax incentives to individuals indulging in philanthropic activities. This section offers tax deductions on donations made to certain funds or charities. An amount donated by an individual to an eligible charity can be claimed as a tax deduction while filing of an income tax return.
Eligibility Criteria for Section 80G :
All taxpayers (individuals/companies/Hindu Undivided Families) are eligible to make donations to charity under Section 80G and claim a deduction, subject to limits set down by the government. NRIs are also entitled to the benefits under Section 80G, provided their donations are to eligible trusts or institutions.
Donations Permitted under Section 80G:
Individuals who wish to claim deductions under section 80G need to ensure that the organisation they are donating to falls under the purview of this Act. Only those donations made to registered and valid funds or charitable institutions qualify for suitable deductions. Trusts and charities need to be registered under Section 12A post which they qualify for the 80G certificate. Individuals are advised to check the credentials of an organization before donating to it.
Exemptions under Section 80G:
Not all donations made by an individual qualify for deductions under Section 80G. Donations made to foreign trusts and political parties are not covered under the ambit of this section and individuals cannot claim tax deductions for such donations.
Deduction under Section 80G:
Donations paid towards eligible trusts/charities which qualify for tax deductions are subject to certain conditions. Donations under Section 80G can be broadly classified under four categories, as mentioned below.
- Donations with 100% deduction (Without any qualifying limit): Donations made under this category enjoy 100% tax deduction and are not subject to any qualification limit being met. Donations to the National Defence Fund, Prime Minister’s National Relief Fund, The National Foundation for Communal Harmony, National/State Blood Transfusion Council, etc. qualify for such deductions.
- Donations with 50% Deduction (Without any qualifying limit): Donations made towards trusts like Prime Minister’s Drought Relief Fund, National Children’s Fund, Indira Gandhi Memorial Fund, etc. qualify for 50% tax deduction on donated amount.
- Donations with 100% deduction (Subjected to 10% of adjusted gross total income): Donations made to local authorities or government to promote family planning and donations to Indian Olympic Association qualify for deductions under this category. In such cases, only 10% of the donor’s Adjusted Gross Total Income is eligible for deductions. Donations which exceed this amount are rounded off to 10%.
- Donations with 50% deduction (Subjected to 10% of adjusted gross total income): Donations made to any local authority or the government which would then use it for any charitable purpose qualify for deductions under this category. In such cases, only 10% of the donor’s Adjusted Gross Total Income are eligible for deductions. Donations which exceed this amount are capped at 10%.
Scope of Deduction:
There are certain basic criteria which must be met for a donation to be valid under Section 80G. Some of the major points are mentioned below.
- Donations should be paid through taxable or exempted income only. Donations made through other non-taxable income sources do not qualify for deduction.
- Only those donations which are paid in cash or cheque are eligible, with donations made in the form of clothes, food, medicines, etc. not eligible under Section 80G.
- Only companies are eligible for deductions when it comes to donations made to the Indian Olympic Association.
- Only those donations made to valid and registered trusts qualify for deductions.
- Donation made to foreign institutions and political parties are exempt from deductions.
Documents Required to Claim Deduction under Section 80G:
Individuals wishing to claim deduction under Section 80G need to have the following documents to support their claim.
1) Duly Stamped Receipt: It is mandatory to have a receipt issued by the trust/charity which receives a donation. This receipt should include details like the name, address and PAN number of the trust, amount donated and the name of donor.
2) Form 58: Form 58 is essential if a donor intends to claim 100% deduction on a donation, without which their donation will not be eligible for 100% deduction.
3) Registration Number of Trust: Each eligible trust is provided with a registration number by the Income Tax Department and donors should ensure their receipt contains this number. This registration number needs to be valid on the date of a particular donation, failing which a donation might be in eligible for deductions.