Section 80G
One of the best ways to save money on tax while also doing your bit to contribute to the world is by making donations towards charities that will then give you deductions under Section 80G. These have to be trusts or institutions that are eligible.
The deduction under the Act is available for contributions made to the specified relief funds and charitable institutions. Not all charitable donations are eligible for deduction under Section 80G. Only donations made to the prescribed funds can qualify as a deduction. The Government of India introduced Section 80G deduction to encourage people to donate. The Government, by providing income tax relief, intends to motivate people to make more donations to worthy causes.
Under Section 80G, the amount donated is allowed to be claimed as a deduction at the time of filing the assessee’s income tax return. Deduction under Section 80G can be claimed by individuals, partnership firms, HUF, company and other types of taxpayers, irrespective of the type of income earned. Trust and institutions registered under Section 80G are 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 made while the Section 80G registration is not valid, then the donation would not be eligible for deduction.
Amount of Deduction under Section 80G
Donations paid towards eligible trusts and charities which qualify for tax deductions are subject to certain conditions. Donations under Section 80G can be broadly classified into four categories. The categories are mentioned below:
Donations with 100% deduction (Available without any qualifying limit)
Donations made under this category can obtain a 100% tax deduction and are not subject to the requirement to achieve any qualification criterion. 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 (Available 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 the donated amount.
Donations with 100% deduction (Available up 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 restricted to 10%.
Donations with 50% deduction (Available up 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%.
What is the mode of payment
This deduction can only be claimed when the contribution has been made via a cheque or a draft or in cash.
But the deduction is not allowed for donations made in cash exceeding Rs 10,000. In-kind contributions such as food, material, clothes, medicines etc. do not qualify for deduction under section 80G.
From Financial Year 2017-18 onwards: Any donations made in cash exceeding Rs 2,000 will not be allowed as a deduction. The donations above Rs 2,000 should be made in any mode other than cash to qualify as a deduction under section 80G.
Amount of Donation: The various donations specified in section 80G are eligible for a deduction of up to either 100% or 50% with or without restriction, as provided in section 80G.
How to claim the deduction
To be able to claim this deduction the following details have to be submitted in your Income Tax Return:
- Name of the Donee
- PAN of the Donee
- Address of the Donee
- Amount of Contribution-breakup of contribution in cash/other mode
- Amount eligible for deduction
Adjusted Gross Total Income
The term ‘adjusted gross total income’ refers to the gross total income (which is the summation of income under various heads prior to providing relief under the provisions of Chapter VI-A) as reduced by the following:
- Amount deductible under Sections 80CCC to 80U (without including Section 80G)
- Exempt income as per Section 10 of the Act
- Long-term capital gains
- Short- term capital gains taxable @15 per cent under section 111A.
- Income referred to in Sections 115A, 115AB, 115AC, 115AD, pertaining to non-residents and foreign companies.
Documents Required for Claiming a Deduction
Taxpayers claiming deduction under Section 80G must have the following documents to support the claim.
Donation Receipt
It is mandatory to have a donation receipt issued by the Trust or Charity which received the donation. This receipt should include the following details mandatorily to be valid:
- Name and address of the Trust or NGO
- Name of the Donor
- Amount donated (mentioned in words and figures)
- Registration number of the Trust, as given by the Income Tax Department under Section 80G along with the period of validity.
Form 58A is required if the taxpayers claims 100% deduction on a donation, without which their donation will not be eligible for 100% deduction. Form58A will be provided only for certain types of eligible deductions.
How does deduction under Section 80G benefit different types of taxpayers?
The tax benefit will depend up on what is the tax rate applicable to the taxpayer.
For example, Mr. S an individual and M/s. P Pvt. Ltd., a company both give donation of Rs. 1,60,000/- to a NGO. The total income for the A.Y. year 2020-21 of both Mr. S and Ms. P Pvt. Ltd. is Rs. 7,00,000/-. The tax benefit would be as shown in the table:
| Particulars |
Mr. X |
M/S. P Pvt. Ltd. |
| i) Income for the year 2020-21 | 7,00,000 | 7,00,000 |
| ii) Donation made to NGO | 1,60,000 | 1,60,000 |
| iii) Qualifying amount for deduction (50% of donation made) | 80,000 | 80,000 |
| iv) Amount of deduction u/s 80G (Gross Qualifying Amount subject to a maximum limit 10% of the Gross Total Income) | 50,000 | 50,000 |
| v) Taxable Income after deduction | 6,20,000 | 6,20,000 |
| A. Tax payable after Donation | 36,500 | 1,86,000 |
| B. Tax payable before Donation | 52,500 | 2,10,000
|
| C. Tax Benefit from Section 80G deduction | 16,000 | 24,000 |
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Posted by Ramesh Kumar Gupta