Deduction U/s. 80G of Income Tax Act, 1961 for donation
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 theIncome 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 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
o
Stamped receipt: 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).
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.
o
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
o
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.
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).
For 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 please check the link given below:-
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:
o
Amount deductible
under Sections 80CCC to 80U (but not Section 80G)
o
Exempt income
o
Long-term capital
gains
o
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 toregister 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
|
Note :
o
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
has 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,
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.
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.
So,
|
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.
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:
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
|
This
article is just for the general information of the readers. In case
you need more details and guidelines contact your tax consultant. Errors and omissions are expected
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