INSPITE of all the contributions made to social
causes, there is a huge gap between the demand of money from the needy and the
amount donated by philanthropists. This probably, is the reason why the
Government has given tax benefits on donations. The amount donated towards
charity attracts deduction under section 80G of the Income Tax Act, 1961.
Section 80G has been in the law book since financial year 1967-68 and it seems
it’s here to stay. Several deductions have been swept away but the tax sop for
donations appears to have survived the axe. The main features of tax benefit
with respect to charity are as follows:
Allowable to all kind of Assessee:- Any person or
‘assessee’ who makes an eligible donation is entitled to get tax deductions
subject to conditions. This section does not restrict the deduction to
individuals, companies or any specific category of taxpayer.
Donation to Foreign Trust:- Donations made to
foreign trusts do not qualify for deduction under this section.
Donation to Political Parties:- You cannot claim deduction for donations made
to political parties for any reason, including paying for brochures, souvenirs
or pamphlets brought out by such parties.
Only donation made to made to prescribed funds and institutions
qualify for deduction: - All donations are not eligible for tax benefits. Tax
benefits can be claimed only on specific donations i.e. those made to
prescribed funds and institutions.
Maximum allowable deduction:- If aggregate of the sums donated
exceed 10% of the adjusted gross total income, the amount in excess of 10%
ceases to be entitled for tax benefit.
Documentation Required for Claiming deduction
U/s. 80G
- Stamped
receipt:
For claiming deduction under Section 80G, a receipt issued by the
recipient trust is a must. The receipt must contain the name and address
of the Trust, the name of the donor, the amount donated (please ensure
that the amount written in words and figures tally).
- Mention
of Registration No. of the Trust Under 80G on receipt:- The most important requirement
is the Registration number issued by the Income Tax Department under
Section 80G. This number must be printed on the receipt. Generally, the
Income Tax Department issues the registration for a limited period (of 2
years) only. Thereafter, the registration has to be renewed. The receipt
must not only mention the Registration number but also the validity period
of the registration.
- Validity
of Registration U/s. 80G on the date of Donation:- The donor must ensure that the
registration is valid on the date on which the donation is given. For
example, the registration of a trust may be valid from April 1, 2007 to
March 31, 2009. Now, if the trust does not get its registration renewed on
or after April 1, 2009 then even if donation receipt is issued by the trust
to the donor for donations received on or after April 1, 2009, the donor
would not get any tax benefit.
- Photocopy
of the 80G certificate :- Check the validity period of the 80G certificate.
Always insist on a photocopy of the 80G certificate in addition to the
receipt.
Only donations in cash/cheque are eligible for
the tax deduction:-Donations in kind do not entitle for any tax benefits. For
example, during natural disasters such as floods, earthquake, and many
organisations start campaigns for collecting clothes, blankets, food etc. Such
donations will not fetch you any tax benefits.
Donation made by NRI: - NRIs are also
entitled to claim tax benefits against donations, subject to the donations
being made to eligible institutions and funds.
Deduction if donation deducted from Salary and
donation receipt certificate is on the name of employer:- Employees can claim
deduction u/s 80G provided a certificate from the Employer is received in which
employer states the fact that The Contribution was made out from employee’s
salary account.
Limit on donation amount: -There is no upper limit
on the amount of donation. However in some cases there is a cap on the eligible
amount i.e. a maximum of 10% of the gross total income.
Deduction amount U/s. 80G:-Donations paid to
specified institutions qualify for tax deduction under section 80G but is
subject to certain ceiling limits. Based on limits, we can broadly divide all
eligible donations under section 80G into four categories:
a) 100% deduction without any qualifying limit (e.g., Prime
Minister’s National Relief Fund).
b) 50% deduction without any qualifying limit (e.g., Indira
Gandhi Memorial Trust).
c) 100% deduction subject to qualifying limit (e.g., an approved
institution for promoting family planning).
d) 50% deduction subject to qualifying limit (e.g., an approved
institution for charitable purpose other than promoting family planning).
For list of Institution donation to whom is
eligible to 100% deduction without any qualifying limit, eligible to 50%
deduction without any qualifying limit, 100% & Subject to
qualifying limit and of those eligible for 50% deduction subject to qualifying
limit please check the link given below:-
Qualifying Limit:- The qualifying limits
u/s 80G is 10% of the adjusted gross total income. The limit is to be applied
to the adjusted gross total income. The ‘adjusted gross total income’ for this
purpose is the gross total income (i.e. the sub total of income under various
heads) reduced by the following:
- Amount
deductible under Sections 80CCC to 80U (but not Section 80G)
- Exempt
income
- Long-term
capital gains
- Income
referred to in Sections 115A, 115AB, 115AC, 115AD and 115D, relating to
non-residents and foreign companies.
Eligible Donation:-There are thousands of
trusts registered in India that claim to be engaged in charitable activities.
Many of them are genuine but some are untrue. In order that only genuine trusts
get the tax benefits, the Government has made it compulsory for all charitable
trusts to register themselves with the Income Tax Department. And for this
purpose the Government has made two types of registrations necessary u/s. 12A
& U/s. 80G. Only if the trust follows the registration U/s. 12A, they will
get the tax exemption certificate, which is popularly known as 80G certificate.
The government periodically releases a list of approved charitable institutions
and funds that are eligible to receive donations that qualify for deduction.
The list includes trusts, societies and corporate bodies incorporated under
Section 25 of the Companies Act 1956 as non-profit companies.
Tax benefit depends on rate of Tax applicable
to the Assessee:-Let us take an illustration. Mr. X an individual and M/s. Y Pvt.
Ltd., a Company both give donation of Rs. 1,00,000/- to a NGO called Satyakaam.
The total income for the A.Y. year 2009-2010 of both Mr. X and Ms. Y Pvt. Ltd.
is Rs. 3,00,000/-. The tax benefit would be as shown in the table:
|
Mr. X
|
MS. Y Pvt. Ltd.
|
|
i) Total Income for the year 2008-2009
|
3,00,000.00
|
3,00,000.00
|
|
ii) Tax payable before Donation
|
15,000.00
|
90,000.00
|
|
iii) Donation made to charitable
organisations
|
1,00,000.00
|
1,00,000.00
|
|
iv) Qualifying amount for deduction (50% of
donation made)
|
50,000.00
|
50,000.00
|
|
v) Amount of deduction u/s 80G (Gross
Qualifying Amount subject to a maximum limit 10% of the Gross Total Income)
|
30,000.00
|
30,000.00
|
|
iv) Taxable Income after deduction
|
2,70,000.00
|
2,70,000.00
|
|
v) Tax payable after Donation
|
12,000.00
|
81,000.00
|
|
vi) Tax Benefit U/S 80G (ii)-(v)
|
3,000.00
|
9,000.00
|
Note :
- Education
Cess& Sec. & Higher Educ. Cess has not been included in working of
tax benefit.
IILUSTRATION OF BENEFITS UNDER SECTION 80G
1. Donations to private trusts
Step 1: Find out the qualifying amount
The qualifying amount under this category will be lower of the
following two amounts:
a) The amount of donation
b) 10 per cent of the gross total income as reduced by all other
deductions under Chapter VI-A of the Income Tax Act such as 80C (PPF, LIC
etc.), 80D (mediclaim), 80CCC (pension schemes etc.).
For example, a taxpayer named LaxmiArcelor has taxable salary of
Rs 500,000. He has deposited Rs 70,000 in Public Provident Fund and Rs 60,000
in his company provident fund. He donates Rs 45,000 to CRY (Child Relief &
You) trust. Presuming he has no other income, his taxable income will be computed
as under:
|
Gross salary
|
Rs 500,000
|
|
Less: Deduction under section 80C restricted
to
|
Rs 100,000
|
|
Gross total income (before 80G)
|
Rs 400,000
|
After making donation to CRY, his qualifying amount for 80G will
be:
|
Actual amount of donation
|
Rs 45,000
|
|
10% of Gross total income as computed above
|
Rs 40,000 whichever is lower
|
Since 40,000 is lower, the qualifying amount will be Rs 40,000
Step 2: Find out actual deduction, The next question
that arises is how much would be the actual deduction? In the case of donations
to private trusts, the actual amount of donation would be 50 per cent of the
qualifying amount.
Therefore, in the example given above, since the donation is made
to a private trust, the deduction will be 50 per cent of the qualifying amount
ie 50 per cent of Rs 40,000 = Rs 20,000.
So,
|
Gross total income (Before 80G)
|
Rs 400,000
|
|
Less: deduction under section 80G
|
Rs 20,000
|
|
Total income (taxable income)
|
Rs 380,000
|
Step 3: Check upper limitFinally, the deduction under
section 80G cannot exceed your taxable income. For example, if your income
before deduction is Rs 3 lakh and if you have given donation of Rs 5 lakh to
the Prime Minister’s National Relief Fund, please do not expect to claim a loss
of Rs 2 lakhs. Your income will be NIL (Rs 3 lakh – Rs 3 lakh). The deduction
will be restricted to the amount of your income.
ii) Donations to trusts/funds set up by the
Government
In this category, the entire amount donated i.e. 100 per cent of
the donation amount is eligible for deduction. There is a long list of 21
funds/institutions/purposes for which donations given would qualify for 100 per
cent eligibility. Notable among this list are:
- The National Defence Fund
- The Prime Minister’s National Relief Fund
- Any fund set up by the State Government of Gujarat for
earthquake relief
The funds that figure in this long list are all set up by the
Government. Private Trusts do not figure in this list.
Thus, in this category of donations, the ceiling of 10 per cent
of the gross total income as reduced by all other deductions under Chapter VI-A
of the Income Tax Act does not apply.
In the above example, if instead of donating to CRY, had the
donation been given to say, The Prime Minister’s National Relief Fund, then the
calculations would have different as shown below:
|
Gross Total Income (Before 80G)
|
Rs 400,000
|
|
Less: Deduction under section 80G
|
Rs 45,000
|
|
Total Income (Taxable Income)
|
Rs 355,000
|
