The Income Tax Act, 1961 provides for levy, administration, collection, and recovery of Income Tax. This act guides the taxpayer in computing the total taxable income from the earned income by laying ground rules for tax deductions and tax exemption in India.
Sec 80G is one of the sections under the Income tax Act that allows a taxpayer to claim deductions for various contributions in the form of donations paid to any fund, institution, or charitable trust.
Depending upon the nature and the amount donated to the charitable trust or organization, the donations are subjected to tax deductions of either 50 or 100% (with or without qualifying limit). The motive behind introducing this section was to encourage taxpayers to donate for charitable purposes and save up on the Income Tax payable.
In order to enjoy the tax benefits under Sec 80G, the donor must be aware of the following-
- Any assessee (individual, HUF, or company) can claim an income tax deduction under 80G of Income tax act.
- Only specified are eligible for tax deduction under the section.
- Donations in kind are not considered for taxation purposes and cash donations up to only Rs 2000 are allowed.
- Donations to Political Parties are not Tax Deductible.
- Proper Proof and supporting documents are required to be presented while claiming the Tax Deduction.
However, different donations have different treatment and different tax exemption rates. Hence, Section 80G of the Income Tax Act broadly categorizes donations under two categories:
1. Donations where the income tax deduction is allowed without any qualifying limit. This type of donation is further sub-categorized as:
1.1) 100% deduction without qualifying limit
Donations to the PM Relief Fund, National Defense Fund, Swachh Bharat Kosh, Clean Ganga Fund, and National Children’s Fund are some of the funds that give a 100% deduction limit without a qualifying limit.
1.2) 50% deduction without qualifying limit
Donations to Jawaharlal Nehru Memorial Fund, Prime Minister’s Drought Relief Fund, Indira Gandhi Memorial Trust, and Rajiv Gandhi Foundation are allowed up to 50% deduction without a qualifying limit.
2. Donations where the deduction is subject to a prescribed maximum limit or a qualifying limit. This type of donation is further sub-categorized as:
2.1) 100% deduction subject to qualifying limit
Donations falling under this category will be 100% tax deductible subject to a qualifying (maximum) limit of 10% of the ‘Adjusted Gross Total Income.
‘Adjusted Gross Total Income’ can be calculated by excluding the Amount deductible u/s 80C to 80U (but not Section 80G), non-taxable income, Long-term capital gains under Section 112, 112A which have been included in GTI, Short term capital gains under Section 111A and Income referred to in Sections 115A, 115AB, 115AC, or 115AD from the sum total of Income under all heads.
- Donations to the Government or any approved local authority, institution, or association that is to be utilized for promoting family planning fall under this category.
- For companies, any donation made to the Indian Olympic Association for the promotion of sports.
2.2) 50% deduction subject to qualifying limit:
Donations subject to a qualifying limit of 50% are allowed a deduction of 50% in case they are made to the Government or any approved local authority, institution or association to be utilized for any charity purpose other than promoting family planning, to any corporation established by the Central or any State Government for promoting interests of the members of a minority community, and so on fall under this category.
While there shouldn’t be a limit to our generosity, with the inclusion of 80G in the income tax, the government has set a cap to the extent to which donations need to be tax-deductible to avoid misuse of such provisions with the intent of tax evasion.
At present, millions of NGOs exist in India, however, not all of them come under the 80G deduction list. Hence, if a donor wants to enjoy tax benefits while donating to a NGO, they have to make sure that the organization is 80G certified.
Narayan Seva Sansthan is an example of an 80G certified NGO. The sansthan has been constantly working towards helping and empowering divyangs and other weaker sections of the society.
Since, the Sansthan is registered as a charitable trust under Section 80G and 12A of Income tax Act, the donors of the sansthan can receive a tax deduction of up-to 50%.
To know more about the sansthan and their tax exemptions, you can click here!