Tax Benefits of Donating To Charity

Monday 16 May 2016

Section 80G of the Income Tax Act offers tax rebates to those who make donations to charitable organisations. However, it isn't any donation to a charitable initiative (both in cash or kind) that earns rebate. Since the benefits of being charitable are quite substantial, it only makes sense to understand the technicalities of charitable donations vis-à-vis tax benefits. Further, it is also imperative to understand that these benefits far outweigh tax benefits - the willingness to be charitable is best when it comes with no thought of future compensation.

However, for those who have belief in 'karma', it only makes sense that an act of kindness earns them some sort of gratification, even if it is only seen experienced in an immediate, tangible way through tax rebate. This is why the government has made philanthropic donations a beneficial act.


Documentation required to file for tax deduction
You'll need documentation to supplement your request for a tax deduction for a charitable donation that you've made:

i. Stamped Receipt: A receipt which mentions the name, address and PAN of the trust. It also must cite your name, and the amount you'be donated.

ii . Form 58: For 100% deduction for charitable donations. Form 58 should also be attached

The organisation's Registration number: A valid registration number, with validity dates, must be mentioned on the receipt

iii. 80-G Certificate: Attach a copy of the 80-G Certificate to the receipt to complete your paperwork

What kind of donations are eligible for a tax rebate?
Only cash or cheque donations qualify for tax deduction, which means the Act excludes the scope of donations in kind, like goods and services provided to the charitable organisation, even if it includes clothes, medicine, utensils, food, etc.

Sub sections to Section 80G, ITA:
Tax deductions don't only qualify with reference to Section 80G. Keep in mind sub-sections, which include:

i. Section 80GGA - 100% tax deduction: Donations made to entities engaged in scientific research and rural development

ii. Section 80GGC : 100% tax deduction: Donations made towards a political party registered under Section 29A, Representation of the People Act, 1951, or an electoral trust.

Who is eligible for tax benefits?
Eligibility under Section 80-G of Income Tax Act is only for the amount donated, and can be claimed while filing the ITR (Income Tax Return), irrespective of your source of income. This deduction is relevant for anyone - Indian residents, Non-Resident Indians, Hindu Undivided Family, or a company.

Which social initiatives do not qualify for donation and tax benefits
Any donations to political parties (for miscellaneous campaign expenses etc), foreign trusts, and organisations not registered with the Income Tax Department via u/s. 12A & U/s. 80G do not qualify for tax rebate.

Here’s how an NGO can register under Section 80G
Along with formal registration (Societies Registration Act 1860, a corresponding law), or under section 25 of the Companies Act 1956, here's how an NGO is qualified for tax benefits of donating to charity:

i. They must not have any source of income not exempted, including business income.

ii. The NGO's objectives or bylaws must not specify spending  income or assets if they don’t seek to support charities or humanitarian causes

Iii. It does not discriminate its spending on a particular religious community or caste.

iv. Further, the NGO must maintain accounts of receipts & expenditures.

Not all donations provide 100% deduction eligibility
Here are ten important donation types that you need to know about which permit 100% deduction:

  1. National Defence Fund set up by the Central Government
  2. Prime Minister's National Relief Fund
  3. Fund set up by a State Government for the medical relief of the poor
  4. National Illness Assistance Fund
  5. National Blood Transfusion Council or to any State Blood Transfusion Council
  6. National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities
  7. National Sports Fund, National Cultural Fund and National Children's Fund
  8. Fund for Technology Development and Application
  9. Swachh Bharat Kosh (applicable from FY 2014-15)
  10. Clean Ganga Fund (applicable from FY 2014-15)

Conclusion
While civil society enjoys a large corpus of funds from Indian and international channels, it is important to identify and edify NGOs who are known for their transparency. Save The Children is the best NGO for transparency in donation spending, and has spent a substantial number of donations on programmes to fight child exploitation across India. The NGO is supported by 43000+ donors, who as a family, stand resolute in this noble cause of defending child rights. These donations aren't just one-off handouts, but consistent, monthly commitments made to create infrastructure and programming for sustained child rights work.