Always wondered how you can avail tax exemptions under section 80G? Let us tell you all about it.
If there is one section under the Income Tax Act that everyone can use, it is section 80G. Irrespective of whether the taxpayer is an individual, company, or a partnership firm, tax exemptions can be claimed under this section. Even NRIs are eligible to claim benefits under this section and it has nothing to do with Mutual Funds, Home Loans or Insurance. So, what’s this section all about?
Section 80G allows you to claim a deduction from your total taxable income when you make donations and charity contributions. Of course, the deduction under Section 80G is over and above the deduction available under Section 80C. However, the only condition here is that donations will be eligible for a deduction only if it is made using cash. This means that other donations in the form of food, clothes or any other items will not be eligible for a deduction under Section 80G. Also, donations made in cash that exceed Rs. 2,000 cannot be claimed as a deduction. Earlier, this limit was Rs. 10,000.
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How much of a deduction can you claim under Section 80G?
Firstly, you need to keep in mind that deductions are allowed only for contributions made to an Indian trust or organisation. Even in India, not all donations are eligible. Specific donations to prescribed funds and institutions can be claimed as a deduction under this section. There are limits to the amount of deduction you can claim.
Section 80G lays down the rules regarding which donations qualify for 100% and which ones qualify for 50% tax deduction. For example, donations to organisations or trusts such as the National Defence Fund and Primer Minster’s National Relief Fund will qualify for 100% deductions. This means that the whole amount that you contributed to these funds can be claimed as a tax deduction.
There are close to 20 organisations/schemes/trusts which are eligible for 100% deduction without any qualifying limit. Some of them include Prime Minister’s National Relief Fund, donations to approved university or educational institution of national eminence, National Sports Fund, National Cultural Fund, Prime Minister’s Armenia Earthquake Relief Fund, National Foundation for Communal Harmony, Chief Minister’s or Lieutenant Governor’s Relief Fund, Chief Minister’s Earthquake Relief Fund- Maharashtra, donations made to Zila Saksharta Samitis, Army Central Welfare Fund, Indian Naval Benevolent Fund and Air Force Central Welfare Fund.
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In the case of donations eligible only for a 50% deduction, you can claim only half of what you contributed as the tax deduction. For example, the taxpayer uses only Rs. 25,000 as the tax deduction amount if he contributes say, Rs. 50,000. The schemes such as Jawaharlal Nehru Memorial Fund, Prime Minister’s Drought Relief Fund, National Children’s Fund, Indira Gandhi Memorial Trust and Rajiv Gandhi Foundation are some notified schemes that are eligible for 50% deduction.
Also, there are limits on contributions to certain organisations. You cannot claim a deduction on donations that exceed 10% of your gross total income. So, you can claim only donations that are up to 10% of your adjusted gross total income. For example, donations to promote family planning will qualify for 100% deduction but will be limited to 10% of your adjusted gross total income.
For donations capped at 10%, calculate the amount of adjusted gross total income. The adjusted gross total income will be total income from various heads minus exempt income, long-term capital gains and other deductions under Section 80C to 80U (except Section 80G). As mentioned earlier, you can claim either 100% or 50% of the donation based on the rules under Section 80G. Let’s consider an example to understand this better.
Suppose you contributed Rs. 1.5 lakh to the Indian Olympic Association that qualifies for 100% deduction. If adjusted gross total income comes to Rs. 10 lakhs, you can claim only Rs. 1 lakh as a tax deduction. In case you contributed Rs. 1.5 lakh to the local government organisation that qualifies for 50% deduction, you can claim only Rs. 75,000 as the tax deduction. This is within 10% of the adjusted gross income limit.
Donations to the Government or a local authority for the purpose of promoting family planning and sums paid by a company to Indian Olympic Association are eligible for 100% deduction, subject to the 10% limit. Donations to the Government or any local authority which would be utilised by them for any charitable purposes (other than the purpose of promoting family planning) are eligible for 50% deduction, subject to the 10% limit.
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You can claim deductions under Section 80G through your employer only in cases where there is no maximum limit. If you make donations to funds within the 10% limit, you’ll have to claim the deduction at the time of filing returns.
How to claim that deduction
The taxpayer should collect the receipt for the donation as proof of having made the donation to the organisation. The receipt should have details of the organisation and their registration number, along with the name of the donor and the amount of donation made. The registration number of the trust or organisation, as issued by the Income Tax department, should be printed on the receipt. It should also mention the validity period of the registration. This is a very important requirement for claiming the tax deduction. The address and PAN of the trust/organisation should be mentioned in the receipt. The amount written in figures and in words should tally. If the donation is eligible for 100% deduction, then you should get Form 58 from the trust or organisation. This form will contain all the details about the project for which the donation is being collected.
Sometimes, the employer deducts the donation amount from the employee’s salary. Even in this case, it is possible to claim a deduction under Sec 80G. Although the receipt will be in the employer’s name. In this case, the employer should issue a certificate which states that the donation was made from the employee’s salary.
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