Income Tax Exemptions for FY 2017-2018 and AY 2018-2019

Friday 5 January 2018

The 2018 tax season is fast approaching, and it brings a sense of urgency for those making last-minute investment decisions for tax purposes. There are few simple and straightforward ways to maximise on your tax savings. Most modern workplaces today have dedicated sessions to explore the many ways tax saving can be done. Most important and popular are the savings under 80C, which have been addressed at length below. Additionally, citizens who find themselves compelled to give back in a way that matters and donate to charity must also read our guide on giving to charity for donation tax rebate.

Section 80C

Section 80C grants a maximum of Rs. 1.5 lakh. Popular investments that are viable for tax saving include Payment made towards life insurance policies (for self, spouse or children) or a superannuation/provident fund; tuition fees (for a maximum of two children); payments made towards construction and purchase of a residential property, and; payments issued towards a fixed deposit with a minimum tenure of 5 years

Some relevant subjections:

Section 80CCD enables employees to contribute to National Pension Scheme (NPS), with a maximum contribution of 10% of the salary (Basic+DA) for salaried or gross income in case of self-employed.

Total deductions under sections 80C, 80CCD (1) and 80CCC combined cannot exceed Rs 1,50,000 for financial year 2017-18.

Donate to NGO fundraising

Section 80G specifies that you can claim donations made to specified relief funds, NGOs, and charitable institutions as a deduction from gross total income before arriving at taxable income.

However, not every charitable institution is registered to grant its donors deduction on donation – it must be notified by the income tax department. Further, even on donation to notified entities, there is a distinct list of causes that can avail you a 100 percent deduction.

Tax rebate

Anyone who donates to a notified institution or government relief fund can claim tax deduction. However, donation to foreign trusts and political parties are not applicable for deduction under this section. However, donation to political parties are relevant as tax deductible under the section 80GGC of the Income Tax Act.

Mode of payment for donation tax rebate

In the past, it was advisable to donate via cash or cheque. However, from the assessment year 2018-19 onwards, a maximum deduction of Rs. 2000 can be claimed for a person who makes donation via cash, and there is no maximum limit for deduction amount if payment is made via cheque or online/digital payments. The government curbed the cash limit from Rs. 10,000 to Rs. 2,000, to prevent tax filing using fake donation receipts. Donations in kind e.g. clothes and food rations are not deductible under this section.

Amount claimed for deduction

The amount that can be claimed for deduction under section 80G can be either 100% or 50% of the amount donated as a deduction, subject to 'With' or 'Without' upper limit. The deductible amount, and the upper limit is based on the entity being donated to. The income tax department has published, and regularly updates a list of institutions and entities. This list specifies the deduction that can be claimed on donations made, corresponding to each entity.

‘Upper limit’ for donations

The donor can claim either 50% or 100% of the donation amount without any other limitation. Examples of entities to whom this is applicable to include The Prime Minister's National Relief Fund and the National Defence Fund. These also offer 100% deduction, which means that you can claim deduction on 100% of the amount donated. On the other hand, trust funds like Jawahar Lal Nehru Memorial Fund and Prime Minister's Drought Fund provision for only 50% of the amount donated- as deduction.

Conclusion
Irrespective of your salary, you can save a significant amount on tax rebate, and also give back to society. Every rupee you give to charity can make a difference, accruing to a large substantial fund for social change. For NGOs like Save the Children. donations fuel its much-needed intervention and enable which millions to escape lives of low wages and exploitation. Instead, they become capable of earning a proud taxable income, and giving back to the economy.