Income Tax Deductions For Donations Made

 

Income Tax Deductions For Donations Made

 

The Indian Income Tax Act allows a deduction from a person’s Gross Total Income for certain types of donations (made by such person). Donations made to any fund or a charitable organisation which is registered and recognised under the Income Tax Act is eligible for deduction u/s 80G and 80 GGA of the Act. This deduction is allowed subject to certain conditions with respect to the fund or charitable organisation and the Total Income of the donor.

 

In this article we examine the provisions of section 80 G from the perspective of a donor.

 

Deduction under section 80 G of the Income tax Act can be grouped under 4 broad categories.

 

The first two categories (1 and 2) are those which are Funds set up by Government and notified as such. Deduction for donations made under these categories is not subject to any qualifying limits.

1.      Donations on which 100% deduction is allowed (without qualifying limit)

2.      Donations on which 50% deduction is allowed (without qualifying limit)

Organisations under category 1 and 2 are typically Government set up funds like National Defence Fund, Prime Minister’s National Relief Fund, University or Educational Institution of national eminence, any fund set up by a State Government to provide medical relief to poor, Prime Minister Drought Relief Fund, etc.

The other two categories (3 and 4) are those which are institutions or notified funds registered under the Income Tax Act and recognised as such. Deduction for donations made under these categories is subject to qualifying limits.

3.      Donations on which 100% deduction is allowed (subject to qualifying limit)

4.      Donations on which 50 % deduction is allowed (subject to qualifying limit)

Institutions / Funds registered under the categories 3 and 4 would typically fall under the NGO category (Fund / Institutions which satisfies the conditions mentioned under section 80 G (5)). These include religious organisations. Donations to a Government or a Local Authority for certain purposes also fall under this category.

 

There are several funds / organisations listed specifically under these four categories. The purpose of this article is to explain the basic mechanism / working of the deduction under section 80 G of the Income Tax Act. The list of funds appearing under these 4 categories are available through a basic google search.

 

We have used the term “qualifying limit” above. Qualifying limit is 10% of Adjusted Gross Total Income. This is Gross Total Income as reduced by deductions under other sections of Chapter VI A other than section 80 G. In other words, Gross Total Income less deductions under sections 80C to 80U except 80G.

 

Having understood the categories of Funds to whom donation can be made and deduction claimed therefor, let us see how to claim this deduction. In order to be eligible to claim deduction, the donation can be made by way of cheque, cash, draft, or any other banking channel. However, cash donation over Rs 2,000 made to a political party is not eligible for deduction. The donor is required to retain proof of donation made.

 

In the Income Tax Return form, the department has introduced a separate table for claiming deduction under 80 G. In this table one is required to fill the details of the donations made and of the donee (donation receiver). This includes the name of the donee organisation / fund, Permanent Account Number, address, mode of donation and amount of donation made. Separate columns are available for the four different categories of donations made (listed earlier in this article). The IT utility made available in the Income Tax Department’s portal, auto calculates the eligible amount of deduction, depending on the qualifying amount.

 

The Income Tax Department now requires the recipient of the donation to inform the details of donation received by them to the Department by filing a form in a specific format. The purpose of this could be that the information uploaded in the Income tax portal by the recipient of the donation would be captured and posted against the donor’s PAN. At the end of the year at the time of filing the IT return, among several other financial information, the donor would also be able to see the details of donations made by them in the Annual Information Statement.

 

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