Section 80G deduction

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Introduction

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Charitable organizations do tireless work to help the less fortunate, needy sections of the society. To support their work, the government offers tax deductions to citizens for contributions and donations made toward charities. Section 80G of the Income Tax Act governs the specific rules and the overall scope of the tax deductions on charity contributions.

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Charity contributions in India have shown an upward spike over time due to increasing private contributions. Notice the increase in the red slice from 2011 to 2016 - that’s the increase in contributions from individual Indians. Source: Ministry of Corporate Affairs.

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What is Section 80G?

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Section 80G of the Income Tax Act lets you claim tax deductions on charitable contributions made in the financial year while filing your Income Tax Returns. This can put you in a lower tax bracket and reduce your tax liabilities. A unique feature of Section 80G is that for a certain number of charities, there is no upper limit to how much contributions can be tax-deductible while filing ITR.

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Eligibility for Claiming Deductions under 80G

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The eligibility criteria for Section 80G is quite wide. In order to claim tax deductions under Section 80G, you would have to meet the following eligibility criteria:

• Individuals and HUFs can claim deductions on their contributions

• NRIs contributing to applicable trusts can claim deductions

• The taxpayer must submit relevant proof of their contributions

• The contribution to the charitable organisation must be made from one’s taxable income. Donations made from non-taxable income will not be considered for deductions.

 

Donations Permitted under Section 80G

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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.

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Exemptions under Section 80G

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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.

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What is the mode of payment?

Income tax deduction can only be claimed under section 80G if donations are made via cheque, draft, or cash. You can donate any amount to an NGO, but cash donations must not exceed Rs. 10,000 to claim donation tax deduction. Donations made in kind like food, clothes, medicines  are not eligible for tax exemptions under section 80G.

However, from financial year 2017-18, any donations made in cash above Rs. 2,000 are not allowed as deduction. Donations above Rs. 2,000 must be made through any other mode to qualify as a deduction under 80G.

 

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.

1. 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.

2. 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.

3. 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%.

4. 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:

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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

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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.

 

DISCLAIMER- These materials are public information and have been prepared solely for educational purposes. These materials reflect only the personal views of the author and are not individual legal advice.

It is understood that each case is fact specific and that the appropriate solution in any case will vary. Finally, the owner will not be accountable for any loses injuries or damages from the exposures or usage of this information.

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