CA Sandeep Kanoi
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 , address & PAN of the Trust, the name of the donor, the amount donated (please ensure that the amount written in words and figures tally). In case of donation which are eligible for 100% deduction recipient should also insist on form 58 from trust. Form 58 contains the details of project cost (for which the donation is received), amount authorised under this project and the actual amount collected. Without form 58, the claim for 100% deduction could be rejected even if the receipt mentions 100% deduction.
- 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.
With Effect from 1st October 2009 it is not required for a trust to apply for renewal of 80G certificate, if the same is valid on 01.10.2010 or valid upto a date thereafter unless department specifically ask Trust to apply for renewal. So Old 80G certificate will remain valid if the same is valid
- 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. No deduction under this section is allowable in case of amount of donation if exceeds Rs 10000/- unless the amount is paid by any mode other than cash.
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).
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 are as follows :-
Donations with 100% deduction without any qualifying limit:
1. Prime Minister’s National Relief Fund
2. National Defence Fund
3. Prime Minister’s Armenia Earthquake Relief Fund
4. The Africa (Public Contribution – India) Fund
5. The National Foundation for Communal Harmony
6. Approved university or educational institution of national eminence
7. The Chief Minister’s Earthquake Relief Fund, Maharashtra
8. Donations made to Zila Saksharta Samitis.
9. The National Blood Transfusion Council or a State Blood Transfusion Council.
10. The Army Central Welfare Fund or the Indian Naval Benevolent Fund or The Air Force Central Welfare Fund.
11. Army Central Welfare Fund, Indian Naval Ben. Fund, Air Force Central Welfare Fund.
12. National Illness Assistance Fund
13. Chief Minister’s or Lt. Governor’s Relief Fund
14. National Sports Fund
15. National Cultural Fund
16. Govt./ local authority/ institution/ association towards promoting family planning
17. Central Govt.’s Fund for Technology Development & Application
18. National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation & Multiple Disabilities
19. Indian Olympic Association/ other such notified association
20. Andhra Pradesh Chief Minister’s Cyclone Relied Fund
Donations with 50% deduction without any qualifying limit.
1. Jawaharlal Nehru Memorial Fund
2. Prime Minister’s Drought Relief Fund
3. National Children’s Fund
4. Indira Gandhi Memorial Trust
5. The Rajiv Gandhi Foundation
6. Donations to govt./ local authority for charitable purposes (excluding family planning)
7. Authority/ corporation having income exempt under erstwhile section or u/s 10(26BB)
8. Donations for repair/ renovation of notified places of worship
9. World Vision India
10. Udavum Karangal
Donations to the following are eligible for 100% deduction subject to 10% of adjusted gross total income
1. Donations to the Government or a local authority for the purpose of promoting family planning.
2. Sums paid by a company to Indian Olympic Association
Donations to the following are eligible for 50% deduction subject to 10% of adjusted gross total income
1. Donation to the Government or any local authority to be utilized by them for any charitable purposes other than the purpose of promoting family planning.
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 2011-2012 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 2011-12||3,00,000.00||3,00,000.00|
|ii) Tax payable before Donation||14,000.00||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||11,000.00||81,000.00|
|vi) Tax Benefit U/S 80G (ii)-(v)||3,000.00||9,000.00|
- 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 Laxmi Arcelor as 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 & presuming that Donation is eligible for 50% deduction, 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.
|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 limit
Finally, 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|
(Updated on 08.01.2015)