Section 80G Deduction - Claim Tax Benefits on Donations

An effective tax planning is extremely crucial as it not only ensures compliance with Indian laws, but also unlocks the benefits of tax savings. According to the Income Tax Act of 1961, there are different ways in which you can save on taxes. Section 80G is a provision under the Income Tax Act of India that encourages charitable contributions by providing tax benefits on such donations. Curious to learn more? Read further to know all about Section 80G.

Overview of Section 80G

Irrespective of earnings, there are most of us who have done charity for people's welfare. To encourage such noble activities, the government of India provides tax benefits. Section 80G allows individuals and businesses to claim deductions on their taxable income for donations made to eligible charitable institutions and funds. The tax benefit is however dependent on the donation amount and terms and conditions specified in the Income Tax Act of 1961. 

Eligibility to Claim Tax Deductions Under Section 80G

The eligibility criteria to claim tax deductions under Section 80G are as follows:

• Any salaried or self-employed individual can claim tax deduction under section 80G 
• To be eligible for tax savings, you must have donated in the form of money and not goods or services. The payment can be in the form of cash or digital payments, however, you must possess a receipt of the same 
• Not every financial institution qualifies for providing tax benefits. So, to ensure eligibility, you must check whether the charitable funds towards which you have made the donation qualifies for deductions or not

Documents Required to Claim Under Section 80G

Listed below are some of the important documents required to claim tax savings under Section 80G of the Income Tax Act:

• Donation Receipts: This is one of the most important documents that you require as it contains details of the amount you have donated and your personal details such as name, PAN, and more.

• Copy of 80G Certificate: You should also have a copy of the trust’s 80G registration certificate.

• Registration Number of Trust: This is proof that the trust where you have made the donation is registered with the IT department. 

Section 80G - Limit for Tax Deductions 

The deduction under section 80G is as follows:

100% Deduction Without any Limit

Under this, the donation amount can be exempted from tax deductions up to 100%. The list of donations eligible under this is as follows:

• National Defence Fund by Central Government
• Prime Minister’s National Relief Fund
• National Sports Fund
• National Children’s Fund
• Zila Saksharta Samiti constituted in Gujarat
• National Illness Assistance Fund
• Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund
• National Cultural Fund set up by the CG
• National Fund for Control of Drug Abuse
• Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund

100% Deduction with Qualifying Limit

Any donation under this is subject to a specific limit.

• Family Planning Association of India/ Red Cross Society of India
• Government or approved local authority to be utilised for the purpose of family planning
• Indian Olympic Association

50% Deduction Without Qualifying Limits

• Jawaharlal Nehru Memorial Fund
• Rajiv Gandhi Foundation
• Prime Minister’s Drought Relief Fund
• Indira Gandhi Memorial Trust

50% Deduction With a Qualifying limit

• Repair or renovation of notified temple, mosque, or such religious places
• If any government authority is utilised for charitable purposes
• Any authority satisfying the need for housing accommodation

How to Calculate the Amount of Deduction Under Section 80G?

To calculate the tax deduction amount under section 80G, you need to follow the below-mentioned steps:

• Check the category in which the donated fund falls. For instance, you need whether it qualifies for a 100% deduction or 50% deductions
• Once you are sure of which category the fund belongs to, use the formula mentioned below:

1. Gross Qualifying limit = Donations made to Category 2
2. Net Qualifying limit = 10% of the “adjusted gross total income”
3. Deductible Amount = 100% or 50% of the donation amount which is subject to the net qualifying limit

Things to Consider While Claiming Under Section 80G

Listed below are some of the things you need to keep in mind when you claim tax deductions under section 80G:

• Limitations of Section 80G: The deduction is not applicable if you are making any donation to a foreign institution
• Donations to Political Party: Any kind of donation that is made to political parties does not qualify for deduction under this section. However, there are other sub-sections of 80G that consider contributions made to political parties such as section 80GGB  and 80GGC. You need to consider that only a few donations qualify for tax deductions as has been enlisted above.
• Documents: To claim under section 80G, you need to keep all the necessary documents with you, donation receipts being one of them.

Comparing Section 80G with Section 80GGA

While Section 80G provides tax exemptions on charitable donations, section 80GGA provides tax-saving opportunities in case of donations made towards research or rural development projects. The former allows deductions at varying rates, 50% or 100%, contingent on the recipient, with limits and conditions. In contrast, Section 80GGA permits a deduction for the entire donation amount without such cappings. Thus, it is important to understand the contrast between the two to maximise your tax savings. 

Take Away

To conclude, Section 80G serves as an effective way to reduce tax liabilities as well as contribute to noble causes. You can consult a financial advisor to maximise your tax savings even more.

FAQs

1. Can NRI get tax savings under section 80G?

Yes, NRIs are eligible for tax savings under section 80G.

2. Can a businessman claim under section 80G?

Yes, a businessman can also enjoy tax benefits under section 80G.

3. Is there a limit on the tax deductions under section 80G?

Yes, there is a limit on the tax deductions under section 80G.

4. Do I need to submit donation receipts while claiming under section 80G?

Yes, donation receipts are essential to claim under section 80G.