Last Updated on Mar 9, 2022 by Aradhana Gotur
As responsible citizens, giving back to society is our duty. As responsible citizens, it is our duty to give back to society. One of the ways to do this is by making donations to recognized funds set up by the Government or charitable institutions. Your donation helps in the promotion of various communities and activities. It also aids the development and growth of the country.
Moreover, such a donation also comes with various tax benefits for you. Section 80G of the Income Tax Act (IT Act) allows you to claim a deduction on donations to specified funds and institutions. This reduces your overall tax liability. Here’s everything you should know about claiming a deduction under section 80G.
This article covers:
- How can you claim a deduction under Section 80G?
- Types of deductions under Section 80G
- How to calculate the adjusted gross total income?
- Deductions under Section 80GG
How can you claim a deduction under Section 80G?
All taxpayers are allowed to claim a deduction under this section. This includes individuals, HUFs, companies, firms, and other entities.
If you are making such a donation, keep in mind to contribute via cash, cheque, or draft. Any donation in kind is not taken into account. Further, contribution via cash involves some restrictions. You cannot claim a deduction on cash donated in excess of Rs 2,000.
For example: If you donate Rs 3,000 to an eligible fund in cash, you cannot claim a deduction. However, you may do so if you pay via a cheque.
You need proof of the donation you make. For this, you must preserve the following documents:
- A stamped receipt of your payment. This must mention the name, PAN, and donee’s address. Along with this, it must also reflect the amount donated
- The trust’s registration number and other related details
- If you wish to claim a 100% deduction, you must have Form 58 filled out
The deduction can be only against donations to notified funds. These are mentioned in different categories. Let us have a look.
Types of deductions under Section 80G
The deductions are divided into four categories:
1. Donations eligible for 100% deduction with no qualifying limit
Donations within this category can be fully claimed as a deduction while filing your tax return. Some of the funds you can donate include:
- National Defence Fund
- Prime Minister’s National Relief Fund
- National Foundation for Communal Harmony
- National Illness Assistance Fund
- National Sports Fund and National Cultural Fund
- National Children’s Fund
- Fund for Technology Development and Application
- National Blood Transfusion Council or any State Blood Transfusion Council
Apart from these, many other funds set up by the Central and State Governments qualify for a 100% deduction. This category also includes donations to educational institutions of national importance. Moreover, you may donate to funds set up for relief from natural disasters, such as the Chief Minister’s Earthquake Relief Fund, Maharashtra, etc.
2. Donations eligible for 50% deduction with no qualifying limit
You can claim a 50% deduction on the amount donated to funds in this category. This includes the Jawaharlal Nehru Memorial Fund and the Prime Minister’s Drought Relief Fund. You may also contribute to the Rajiv Gandhi Foundation and the Indira Gandhi Trust.
3. Donations that allow 100% deduction, subject to 10% of the adjusted gross total income
In this case, you can claim a deduction for the entire donation amount. However, the maximum amount you can claim is capped at 10% of your adjusted gross total income.
Any contribution to promote family planning given to the Government, local authority, or approved institution comes under this category. It also includes a company’s donation to the Indian Olympic Association or any organization (as notified) to develop/sponsor sports and games in India.
4. Donations that allow 50% deduction, subject to 10% of the adjusted gross total income
If you donate to an organization or fund mentioned here, you can claim a 50% deduction on the amount. However, the maximum limit of this deduction is 10% of your adjusted gross income.
This category includes donations to the Government, local authorities, or notified institutions. The purpose of such a donation must be different from family planning. Moreover, you can donate to authorities that look into providing housing or the planning and development of cities and towns.
You may also contribute to organizations that promote the interests of minorities (as mentioned in section 10(26BB)). Apart from this, donations for the renovation of religious places such as temples and mosques (as notified) are also included.
How to calculate the adjusted gross total income?
To ascertain the maximum limit for certain deductions under Section 80G, you need to calculate your adjusted gross total income. You can do so by first calculating your total gross income. This is the sum of your incomes under all heads.
Next, reduce all amounts as deducted under Section 80CCC to 80U, except that under Section 80G. Further reduce all exempt incomes, long-term capital gains, and incomes related to foreign companies and non-residents.
The amount obtained is your adjusted gross total income.
Section 80GG is a subsection of Section 80G. This comes with a few different provisions. Let us understand them.
Deductions under Section 80GG
Section 80GG lays down the rules for deductions on donations for those taxpayers who have income from a business and profession. It includes contributions made towards the promotion of scientific research and rural development. You can claim a 100% deduction on the amount donated.
Section 80G of the IT Act provides various benefits to the taxpayers. It allows for deductions against the donations made by them. This effectively benefits society, as more taxpayers are motivated to donate for the growth and development of the country. Get familiar with all the rules under this section to get the maximum benefit while filing your tax returns.