On International Volunteer Day, read how to combine the spirit of giving with the financial benefits of Section 80G to support charitable causes while reducing your tax liability.
International Volunteer Day (IVD), celebrated every year on December 5th, is an occasion that highlights the importance of volunteerism in addressing various social issues and promoting global solidarity. Volunteers across the world dedicate their time, skills, and resources to making a difference in their communities. While the spirit of volunteerism is often viewed in terms of social good, there’s also an interesting financial angle that many might overlook: donations made to charitable organisations can not only help improve society but also provide tax benefits to the donors.
In India, Section 80G of the Income Tax Act plays a crucial role in encouraging charitable giving. It allows taxpayers to claim deductions for donations made to approved charitable institutions, effectively reducing their taxable income. As we observe International Volunteer Day and celebrate the work of volunteers around the globe, it’s an ideal time to discuss how charitable contributions can benefit both society and your financial situation.
Understanding Section 80G of the Income Tax Act
Section 80G of the Indian Income Tax Act, 1961, allows taxpayers to claim deductions for donations made to various charitable organisations. The section aims to promote philanthropic contributions by incentivising individuals and businesses to donate to organisations involved in social welfare, education, healthcare, rural development, and more. These donations, whether in cash or kind, can be eligible for deductions from the total taxable income, leading to significant tax savings.
The key features of Section 80G are:
- Eligible Donations: Donations made to institutions or organisations that are registered with the Income Tax Department under Section 80G can qualify for tax exemptions. These include trusts, NGOs, and other non-profit entities working in fields such as education, healthcare, poverty alleviation, environmental protection, disaster relief, animal welfare, and more.
- Percentage of Deduction: The deduction is not always 100% of the donated amount. It can range from 50% to 100%, depending on the nature of the organization. Donations to some charities may qualify for a 100% deduction, while others may offer a 50% deduction. Furthermore, some donations are eligible for deductions with or without conditions attached (e.g., if the donation is made with a specific purpose).
- No Cap on Donations: There is no cap on the total amount a taxpayer can donate in a year. However, the overall deduction allowed is subject to the prescribed percentage of the donation amount.
- Mode of Donation: Donations can be made in various ways, including cash, cheque, bank transfer, or even in kind. However, for cash donations exceeding ₹2,000, it is essential to maintain the donation receipt in order to claim the tax deduction.
Additional Reading: Tax Deductions Under Section 80G!
How Section 80G Encourages Charitable Giving
The primary objective of Section 80G is to incentivise donations to charitable organisations, thereby helping them mobilise resources for their social welfare initiatives. In essence, the section acts as a tax-saving tool for individuals and entities, promoting a culture of philanthropy in India.
For example, let’s say you donate ₹50,000 to an NGO that qualifies for 50% tax exemption under Section 80G. Your taxable income will be reduced by ₹25,000 (50% of ₹50,000). Depending on your income tax bracket, this reduction in taxable income can lead to substantial tax savings. If you are in the 30% tax bracket, you would save ₹7,500 in taxes. Therefore, not only are you contributing to a noble cause, but you are also reducing your tax liability.
The ability to save taxes while helping a cause is a win-win situation. If more people take advantage of Section 80G, it could lead to an increase in charitable donations and greater support for social initiatives.
Maximising Tax Benefits While Giving Back
As we mark International Volunteer Day, it’s a good time to reflect on how we can contribute to our communities. While volunteering time is invaluable, it’s also important to recognise the role that monetary donations play in enabling social organisations to sustain their operations.
Here are some key ways you can maximise the tax benefits under Section 80G:
- Check the Organisation’s Eligibility:
Not all donations are eligible for tax deductions under Section 80G. The recipient organisation must be registered under the provisions of Section 80G. It’s essential to verify that the organisation has the 80G certification before making a donation. This is usually mentioned on the organisation’s website or can be confirmed through direct inquiry.
- Choose the Right Charitable Cause:
Section 80G covers a wide range of charitable activities. From educational charities to environmental organisations, and healthcare foundations to those focused on disaster relief, there is a broad spectrum of causes that qualify for deductions. By carefully choosing the right cause, you can ensure your contribution supports areas that resonate with your values.
- Document Your Donations:
To avail of the tax benefits, make sure you keep receipts of all donations. The receipt should mention the name of the donor, the amount donated, the date, and the PAN number of the organisation. For cash donations exceeding ₹2,000, it is mandatory to obtain a receipt with the donor’s details.
- Donate in Instalments:
If you plan to make a large donation, consider donating in instalments over the year. This will allow you to spread out your deductions and potentially reduce your taxable income more effectively.
- Corporate Social Responsibility (CSR):
If you are a business owner or represent a corporation, charitable donations also come under the purview of Corporate Social Responsibility (CSR). The Indian Companies Act mandates that companies with a certain revenue threshold must allocate a percentage of their profits toward CSR activities. These CSR activities, too, can be claimed under Section 80G, allowing businesses to contribute to societal welfare while optimising their tax liability.
Additional Reading: A Closer Look: Turning the Magnifying Glass on Ourselves This World Kindness Day!
Volunteering and Donations: A Perfect Pair
While volunteerism involves giving time, effort, and skills to a cause, donations — whether monetary or in kind — play a vital role in sustaining the operations of charitable organisations. In fact, most charitable organisations rely heavily on both financial donations and volunteer support to fulfil their missions.
International Volunteer Day encourages individuals to contribute their time, but combining volunteerism with donations amplifies the impact. By donating funds, you allow organisations to scale their initiatives, providing them with the financial backing needed to carry out their programs efficiently. As a donor, you not only contribute to a cause but also enjoy the benefit of reducing your taxable income through Section 80G.
International Volunteer Day reminds us of the significance of selfless giving and the impact volunteers have on communities around the world. While volunteering is a noble way to give back, monetary donations to registered charitable organisations can also have a profound impact. With Section 80G of the Income Tax Act, charitable donations come with the added benefit of tax deductions, making it easier for individuals and businesses to support social causes while saving on taxes.
So, as you celebrate IVD this year, consider not just volunteering your time but also making a financial contribution to a cause close to your heart. By doing so, you can not only make a difference in society but also reduce your tax burden in a meaningful and impactful way.