The Government of India has made deductions available to its citizens under the Income Tax Act, 1961. However, there is one particular deduction that has the dual benefit of contributing for a social cause and getting tax benefits also that’s right Section 80G.
Donations made to certain funds or charities qualify for exemption under Section 80G of the Income Tax Act. There are some donations for which you are entitled to 100% or 50% exemption without any upper limit, while others are limited to a certain percentage of your gross total income.
So, how can you benefit from Section 80G? Read on to find out.
What Is Section 80G
Contributions made to specified relief funds and charitable institutions are allowed as deductions under Section 80G of the Income Tax Act, 1961. Not all donations qualify for deductions. Only trusts or charities notified by the Income Tax Department qualify for deductions. Any tax payer can avail of this deduction.
Eligibility Criteria for Claiming Deductions under Section 80G
The following is the eligible criteria to claim deductions:
Tax payers in India including individuals, companies and Hindu undivided families.
NRIs can claim deductions provided they contribute to eligible trusts or institutions.
You need to ensure that the trust or institution is registered under Section 12A of the Income Tax Act, 1961 to qualify for a deduction.
Categories of Deductions under Section 80G
There are certain rules with regards to the amount of deduction that can be claimed under Section 80G. There are donations that are eligible for 100% deductions, while others are eligible for 50% deductions.
In addition to 100 or 50% deductions, some deductions are with limits, while others are without limits.
You should choose the trust you want to donate to after determining the amount of deduction allowed under the income tax act. The list of eligible institutions and their limits are periodically updated by the Income Tax Department. Check this list before making your donation.
There are four broad categories where deductions for donations made can be claimed. They are:
Donations with 100% deduction (no qualifying limit):
There is no upper limit for these donations. The eligible funds under this category are the National Defense Fund, The National Foundation for Communal Harmony, the Prime Minister's National Relief Fund and so on.
Donations with 50% deduction (no qualifying limit):
Though there is no upper limit under this category, you are eligible for a 50% deduction of the contribution made. Funds include Prime Minister's Drought Relief Fund, Indira Gandhi Memorial Fund, National Children's Fund and so on.
Donations with 100% deduction (limited to 10% of Adjusted Gross Total Income):
Gross Total Income is adjusted for exempted income, long-term capital gains and all deduction from Section 80C to 80U except for Section 80G.
Funds which are included under this category are local authorities and the Indian Olympic Association or an established institution in India associated with infrastructure related to or development of sports and games in India.
Donations made to the government or local authority utilized for the purpose of family planning are also eligible under this category.
Donations with 50% deduction (limited to 10% of Adjusted Gross Total Income):
Donations made to local authorities or the government who in turn would use the funds for charitable purposes are included under this category other than for the promotion of family planning. Also included under this category are donations made for repairs to notified temples, gurudwara, mosque, church or any other religious place.
An authority associated with providing housing or with the planning and development of urban or rural areas or both.
Companies who are involved with the promotion of interests of the minority community.
Valid Donations under Section 80G
There are certain criteria which must be met for the donations to be valid under section 80G. They are:
Only taxable or exempt income (like income from tax-free bonds) can be used to make donations. Other forms of non-taxable income can't be used to make donations.
Donations should be made in two modes only, cash or cheque. Donations made in kind like clothes do not qualify for deductions. Certain changes have been made from the assessment year 2018-19 with respect to donations made in cash. You will get a deduction up to Rs. 2000/- if donations are made in cash. There is no upper limit for payments made by cheque or digital methods.
Donations made to the Indian Olympic Association can only be made by firms.
Donations should be made to registered trusts only.
Any donation to foreign institutions and political parties don't qualify for deductions.
Documents Required to Claim Deduction under Section 80G
Official Receipt: An official receipt from the trust or charity which should be duly stamped. The receipt should contain the required information like the name of the trust or the charity, address and PAN number of the trust. The amount donated and donor's name should also be included.
Form 58: In order to claim 100% donation, it is mandatory to provide Form 58 duly filled up. Without this form, the deduction will not be allowed.
- Trust Registration Number: All recognized trusts have a registration number issued by the Income Tax Department. The registration should be valid when the donation is being made.
Get the Dual Advantage of Tax Deduction and Social Contribution
We have always wanted, in our little way, to give back to society and improve the lives of the underprivileged. Getting a tax deduction for it is the icing on the cake.
However, you need to exercise caution and ensure that the charitable trust you are making a donation to is registered under Section 12A of the Income Tax Act, 1961. Care must be taken to find out whether the donation is eligible for 100% or 50% deduction and if there are any limits. An official receipt should be issued by the trust.
Lending a helping hand to the needy and save tax by using Section 80G to your benefit.