The amount donated towards charity attracts deduction under section 80G of the Income Tax Act. 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:
Any person or ‘assessee’ who makes an eligible donation is be entitled to get tax deductions subject to conditions. This section does not restrict the deduction to individuals, companies or any specific category of taxpayer.
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. Only if the trust follows the registration, they will get the tax exemption certificate, which is popularly known as 80G certificate.
Firstly, a taxpayer claiming deduction under section 80G should find out the donation amount that qualifies for the deduction. He has to compute the actual donation with reference to the qualifying amount. For this purpose, donations can be broadly divided into two categories:
Step 1: Find out the qualifying amount
The qualifying amount under this category will be lower of the the following two amounts:
a) The amount of donation
b) 10 per cent of the adjusted gross total income. Adjusted gross total income can be calculated by applying the following formula –
|Gross total income (sum of income under all heads)||XXXX|
|(-) Deductions u/s 80C to 80U (except section 80G)||XXXX|
|(-) Exempt income||XXXX|
|(-) Short term capital gains on sale of shares u/s 111A||XXXX|
|(-) Long term capital gains||XXXX|
|(-) Income covered to in sections 115A, 115AB, 115AC, 115AD and 115D concerning to non-resident and foreign companies||XXXX|
|Adjusted gross total income||XXXX|
For example, a taxpayer named Laxmi Sharma has taxable salary of Rs 500,000. He has deposited Rs 40,000 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.
|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.
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 25 funds/institutions/purposes for which donations given would qualify for 100 per cent eligibility. Notable among this list are:
– The National Defense 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|
There are special sections for businessmen and professionals who earn income under the head Profits and Gains of Business or Profession. Section 35AC and 35CCA allow a deduction of 100 per cent of the amount donated for scientific research and rural development to approved research organisations. For this, the research organisation requires the approval of the Government.
Those who do not have any business or professional income (like salaried persons), donations can be given to such organisations and 100 per cent deduction can be claimed under section 80GGA.
Following points must be borne in mind:
– 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).
– 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.
The donor must ensure that the registration is valid on the date on which the donation is given. However 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.
So, please check the validity period of the 80G certificate. Always insist on a photocopy of the 80G certificate in addition to the receipt.
Donations in kind do not entitle for any tax benefits. For example, during natural disasters such as floods, earthquake, many organisations start campaigs 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 2,000/- unless the amount is paid by any mode other than cash.
(Republished with Amendments by Team Taxguru.)