How to Claim Income Tax Deduction for Donation under Section 80G

Sunday 18 February 2018

Those looking to save tax this fiscal year will have definitely looked into the popular Section 80C of the Income Tax Act, to claim Rs 1.50 lakh from total income. There is also a Section 80G offering tax-saving provisions for charity. Section 80G enables tax exemptions for everyone – individuals, Hindu Undivided Families, companies, or partnership firms. It is also applicable to Non-Residential Indians, making it a highly attractive investment option.

The government offers Section 80G donation tax rebate as an incentive for donation.  Under the Income Tax Act, Section 80G can be accessed via contribution to relief funds and charitable institutions.

Claiming 100 percent deduction for donation

Under the 100% category of tax deduction, without any qualifications. Schemes that are applicable for 100% percent deduction include:

i. National Defence Fund
ii. Prime Minister’s National Relief Fund
iii. The National Foundation for Communal Harmony
iv. National/State Blood Transfusion Council.

Further, it is possible to claim donations with 100% deduction (subjected to 10% of adjusted gross total income). If one makes donations to local authorities or government in its bid to promote family planning, or donations to Indian Olympic Association, this category of donation can be accessed. However, only 10 percent of the donor’s adjusted gross total income is eligible for deductions.

Donations with 50 percent deduction

Certain donations and causes can earn you 50 percent tax deduction. This includes:

i. Prime Minister’s Drought Relief Fund

ii. National Children’s Fund

iii. Indira Gandhi Memorial Fund.

Further, donations with 50% deduction (subjected to 10% of adjusted gross total income) can be accessed, if if a person donates to any local authority or the government which then channelize it towards charitable purposes. Only 10% of the donor’s adjusted gross total income is eligible for deductions.

Mode of payment

Taxpayers can claim deduction under Section 80G if their donation is made through cheque, draft or cash. While one can donate to NGO any amount, donation deduction is only available for cash donation that does not exceed Rs. 10,000.  Donations material like food material, clothes, medicines etc. are not valid for Section 80G deduction claims. However, FY18 onwards, cash donations exceeding Rs 2000 are not be allowed as deduction. This therefore makes it imperative to use cheque or online donation to qualify as deduction, aligned to the government’s vision for cashless economy and transparency.

Subsections to Section 80G:

 Contrary to popular belief section 80G of Income tax laws is not just limited to donations made to charities. There I also a rebate on donations made to entities engaged in scientific research and rural development activities. In fact, they get you 100% tax deduction under Section 80GGA. This is also supplemented by Section 80GGC which gives a 100% tax deduction for donations made to any political party registered under section 29A of the People Act 1951.

How does an NGO qualify for tax exemption?

For an NGO to receive tax-exempted donations it needs to fulfil certain criteria. It should be formally registered under the Societies Registration Act 1860 or under section 25 of the Companies Act 1956. All the NGOs sources of income should be through permissible means. All income and assets of the NGO must be used for only supporting humanitarian causes. The NGO must not spend exclusively for a particular religious community or caste. All accounts of the NGO must be clearly maintained and be transparent.

Documentation needed to file for tax deduction

For applying for tax exemption while filing your tax returns you should possess a stamped receipt from the NGO or trust. This should clearly mention the charity’s name, address and PAN, as well as your name, and amount donated. An online receipt will work.  In case you want 100% deduction on donations, keep a Form 58 handy. You must know the organisation's registration number and validity dates and also attach an 80-G Certificate.

Conclusion

Increasingly, Indians are becoming more socially-minded and willing to donate to NGO fundraising. International NGOs like Save the Children have set high benchmarks in ethics, transparency, and ability. It provides a substantial donation tax rebate to donors, as well as the satisfaction of having made a difference. It does this through its well researched and executed programs that span cities, towns, and villages across India designed to bring children out of the circumstances of poverty, ill health and exploitation through campaigns in nutrition, health care, relief and education.