Give money, get tax breaks

You can claim deduction underSection 80G if you donate money

The devastation wrought about recently by Cyclone Gaja in parts of Tamil Nadu has prompted calls for donations to alleviate the suffering of the affected people. It’s a good idea to open up your purse strings and give generously. Your donations can not only help those in need, but it can also reduce your tax liability. The tax break is thanks to Section 80G of the Income Tax Act that allows amounts donated to be deducted from the taxable income. But there are some conditions and restrictions in claiming the tax break.

Entity eligibility

Not all donations qualify for tax deduction under Section 80G. You will get a tax break only if you donate to institutions and funds approved by the Government. This list includes many government and non-government organisations. Before giving, check with the entity whether the donation qualifies for deduction under Section 80G, and if need be, ask to see its registration certificate. In most cases, eligible entities volunteer information about the tax deduction you can get as a donor. Details of many eligible institutions and funds (not a comprehensive list) can be found at www.incometaxindia.gov.in/Pages/acts/income-tax-act.aspx. Search under Section 80G.

Donations to political parties are not eligible for tax breaks under Section 80G but under another provision — Section 80GGC. Also, donations to foreign entities do not qualify for deduction under Section 80G.

Donate money, not in kind

You can get deduction under Section 80G only if you donate money. There is no deduction if you give in kind. So, if you want a tax break, donate funds, and not clothes, food items, utensils or such items.

Also, donations in cash above ₹2,000 are not eligible for deduction from fiscal year 2017-18. Earlier, this limit was ₹10,000. So, if you intend giving more than ₹2,000, do so in modes other than cash such as cheques, demand drafts and online bank transfers.

Deduction limits

There is no bar on the amount you can donate. But there are limits on the tax deduction you can get. The amount qualifying for deduction can be either 100 per cent or 50 per cent depending on the entity to which donation is made. The deduction is further limited to 10 per cent of adjusted gross total income in some cases. Donations to many Government-run entities qualify for 100 per cent tax deduction while in the case of non-Government entities, usually only 50 per cent of the donation qualifies for deduction. These amounts may be further subject to the limit of 10 per cent of your adjusted gross total income.

Donations to Chief Minister’s Relief Funds, for instance in the case of disaster relief, are eligible for 100 per cent tax deduction without limit.

Adjusted gross total income is your taxable income after taking into account deductions other than Section 80G (such as the ₹1.5 lakh annual tax break allowed under Section 80C on investments in instruments such as EPF and PPF), and after reducing some other incomes such as long-term capital gains.

Here’s an example. Suppose your income for the year from various sources is ₹15 lakh and you have invested ₹1.5 lakh in PPF.

This makes your adjusted gross total income ₹13.5 lakh. Now, say you give ₹2 lakh to an eligible entity, donations to which are qualified for tax deduction to the full extent (100 per cent). But if the donation is subject to the limit of 10 per cent of adjusted gross total income, the deduction you can claim will be restricted to ₹1.35 lakh (10 per cent of ₹13.5 lakh).

Claiming deduction

Employers usually do not take into account declarations from employees about Section 80G donations, while computing and deducting their monthly taxes. So, you may have to claim deduction on the donation at the time of filing your tax return.

When you donate, ask for a stamped receipt. This should include details such as the registration number, its validity, and PAN of the donee entity, the Section 80G tax benefit on the donation, the donor name, address, and amount donated.

Some of these details will have to be mentioned while claiming the deduction in the tax return.

Submitting the receipt along with the tax return is not mandatory. But it may come in handy at a later date if the tax officer asks for proof of donation.

Read the rest of this article by Signing up for Portfolio.It's completely free!

What You'll Get





MORE FROM BUSINESSLINE


 Getting recommendations just for you...
This article is closed for comments.
Please Email the Editor