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 under section 80G are as follows:
Any person or ‘assessee’ who makes an eligible donation is entitled to get tax deduction under section 80G subject to conditions. Section 80G does not restrict the deduction to individuals, companies or any specific category of taxpayer.
Donations made to foreign trusts do not qualify for deduction under section 80G.
You cannot claim deduction under section 80G for donations made to political parties for any reason, including paying for brochures, souvenirs or pamphlets brought out by such parties. However deduction for contribution ( other than cash contribution) to political parties can be claimed u/s 80GGB/80GGC
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.
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.
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 01.10.2009 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 on 01.10.2009.
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 the amount of donation exceeds Rs 10000/- from A.y 2013-14 to 2017-18 (Rs 2000/- from A.y 2018-19) unless the amount is paid by any mode other than cash.
NRIs are also entitled to claim tax benefits against donations, subject to the donations being made to eligible institutions and funds.
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.
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.
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 :-
1. Prime Minister’s National Relief Fund
2. National Defence Fund set up by Central Government.
3. Prime Minister’s Armenia Earthquake Relief Fund
4. The Africa (Public Contribution – India) Fund
5. National Children’s Fund
6. The National Foundation for Communal Harmony
7. Approved university or educational institution of national eminence
8. The Chief Minister’s Earthquake Relief Fund, Maharashtra
9. Any fund set up by the State Government Of Gujarat for providing reliefs to the victims of earthquake in Gujarat.
10. Fund set up by the State Government for the medical relief to the poor.
11. Donations made to Zila Saksharta Samitis.
12. The National Blood Transfusion Council or a State Blood Transfusion Council.
13. The Army Central Welfare Fund or the Indian Naval Benevolent Fund or The Air Force Central Welfare Fund.
14. National Illness Assistance Fund
15. Chief Minister’s or Lt. Governor’s Relief Fund
16. National Sports Fund
17. National Cultural Fund
18. Central Govt.’s Fund for Technology Development & Application
19. National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation & Multiple Disabilities
20. Andhra Pradesh Chief Minister’s Cyclone Relied Fund
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
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.
3. Swachh Bharat Kosh ( From A.y 2015-16)
4. Clean ganga Fund ( From A.y 2015-16)
5. National Fund For control of drug abuse (From A.y 2016-17)
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.
2. Any Authority referred to in section 10(20A) for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning/development of town and village.
3. Any Corporation specified in section 10(26BB) for promoting interest of minority community
4. Any notified temple, mosque, gurudwara church or other place (for renovation or repair)
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:
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 8 of the Companies Act 2013 as non-profit companies.
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 2019-20 of both Mr. X and Ms. Y Pvt. Ltd. is Rs. 5,00,000/-. The tax benefit would be as shown in the table:
|Mr. X||MS. Y Pvt. Ltd.|
|i) Total Income for the year 2019-20||5,00,000.00||5,00,000.00|
|ii) Tax payable before Donation||12.500.00||150000.00|
|iii) Donation made to charitable organisations||1,50,000.00||150,000.00|
|iv) Qualifying amount for deduction (50% of donation made)||75,000.00||75,000.00|
|v) Amount of deduction u/s 80G (Gross Qualifying Amount subject to a maximum limit 10% of the Gross Total Income)||50,000.00||50,000.00|
|iv) Taxable Income after deduction||4,50,000.00||4,50,000.00|
|v) Tax payable after Donation||10,000.00||1,35,000.00|
|vi) Tax Benefit U/S 80G (ii)-(v)||2,500.00||15,000.00|
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||Rs 130,000|
|Gross total income (before 80G)||Rs 3,70,000|
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 37,000 whichever is lower|
Since 37,000 is lower, the qualifying amount will be Rs 37,000
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 37,000 = Rs 18,500.
|Gross total income (Before 80G)||Rs 370,000|
|Less: deduction under section 80G||Rs 18,500|
|Total income (taxable income)||Rs 351,500|
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.
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 370,000|
|Less: Deduction under section 80G||Rs 45,000|
|Total Income (Taxable Income)||Rs 325,000|
(Updated on 28.06.2018)