There are a few concepts around which our lives revolve, with love, family, health and money being the primary components which we all strive to achieve. A majority of our life is spent in the pursuit of wealth, first trying to make it and then trying to save it. As responsible citizens of India, it is our duty to contribute a portion of our wealth to the development of the country, which is generally done in the form of taxes. While there is no escaping the taxation rules in the country, one can be smart and utilise certain provisions to reduce the tax burden on themselves. A simple way to do so is through donations, donations which are bound to make both your soul and bank account happy.
Section 80GGA of Income Tax Act, 1961:
The Income Tax Act of 1961 forms the cornerstone for taxation rules and regulations in the country, helping both authorities and taxpayers understand the nuances involved in this complicated process. Section 80GGA of the Income Tax Act pertains to deductions one can claim in lieu of donations towards rural development or scientific research. This section was introduced with the aim to offer incentives to individuals donating to noble causes, helping them save money and increasing philanthropy in India.
A vast number of institutions which are into scientific research and rural development rely on voluntary donations made by individuals and Section 80GGA acts as a lifeline for them, incentivising donors to contribute to the growth and development of the nation.
Eligibility for Rebate under Section 80GGA:
Not all donations are eligible for tax rebates under Section 80GGA of the Income Tax Act and one should check the eligibility before donating. The following donations are eligible for tax rebate under Section 80GGA.
- Donations to research institutions/associations/universities involved in scientific research. Any such institute/associations should adhere to rules prescribed under Section 35(1) (ii).
- Donations to institutions/associations/colleges which are involved in research related to social science or statistics.
- Donations to associations/institutes which are involved in rural development programs, subject to these associations meeting criteria set under Section 35CCA.
- Donations to institutions/associations which are involved in imparting rural development training to individuals or groups.
- Donations to associations/institutions/public sector companies or local authorities who are involved in projects or schemes which are approved under Section 35AC.
- Donations towards the Rural Development Fund.
- Donations towards Afforestation Fund.
- Donations made to the National Poverty Eradication Fund.
Provisions under Section 80GGA:
Deductions under Section 80GGA of the Income Tax Act are not open for all, with the profession of an individual deciding if he/she is eligible for the deduction. Individuals whose Gross Total Income does not include income which can be charged under profits and gains of a business are eligible for deductions. In essence, taxpayers who do not have an income source from business or profession are entitled for such deductions.
Section 80GGA Limit and Payment Mode:
Donations made under Section 80GGA are eligible for 100% tax deduction. There is no upper limit to the amount one can donate to institutes which adhere to principles under this Section and the donations can be in the form of cash, cheque or drafts. Cash donations, however, have a maximum limit of Rs 10,000, with amounts higher than this not permitted by means of cash donations.
For example, Miss Priya has an annual taxable income of Rs 5 lakhs. She chooses to donate Rs 50,000 to an institute engaged in rural development. Under Section 80GGA her donation is now eligible for a tax deduction, making her taxable income post the donation Rs 4,50,000/- (Rs 5,00,000 – Rs 50,000). This amount will be valid only if she made payment via cheque or draft. If she paid via cash, only Rs 10,000 could be considered for deduction.
Section 80GGA and 35AC:
Sections 35AC and 80GGA have certain common features when it comes to income tax deductions. While 80GGA offers 100% deduction on donations made by individuals who have an income source which does not come from a business or profession, 35AC allows individuals who have an income through business or profession to enjoy the benefits of tax deduction.
Donations under both these sections are eligible for 100% tax deduction, helping NGOs gain funds and individuals save on taxes. The major difference between these two sections lie in their carry forward policy. While deductions under Section 35AC can be carried forward to the next year in the form of a loss, deductions under Section 80GGA cannot be carried forward to the next year in the form of losses.
Things to Remember:
- Form 58A: Donors need to ensure they get a copy of Form 58A, which is essential for them to claim 100% tax deduction in lieu of donations made to institutes/NGOs.
- Double Deductions under Section 80GGA: Section 80GGA does not permit double deductions, i.e. if a donation towards a certain cause is claimed as a deduction for a particular assessment year then no other deduction can be claimed for the same year under this section. Only one deduction is allowed for a particular assessment year.
- Approval withdrawal: One should check up on an institute before donating money to see if it is registered and complies with the rules in place. It is possible for institutes to lose their affiliations/approval at times. In such cases, any donation made to an institute before it loses its approval stands valid and can be claimed for deduction.