Can individuals claim tax deduction for donations made to charities?
Yes, individuals can claim tax benefits on ‘eligible’ donations made to charities. Deductions are available under Section 80Gto any taxpayer i.e. individual - resident and non-resident, firm, HUF and company.
All donations are not eligible for tax benefits. Tax benefits can be claimed only on specific donations i.e. those made to prescribed funds and institutions.
Are all donation made u/s 80G equal deduction?
No Under Section 80G of the Income Tax Act, donations have been segregated as follows:
à Those eligible for 100% deduction,
à Those eligible for 50% deduction,
à Those eligible for 100% or 50% deduction, subject to maximum of the 10% of the gross total income.
Is there any upper limit on the amount for purpose of claiming tax benefits?
No, there is no upper limit on the amount of donation. However in some cases there is a cap on the eligible amount i.e. a maximum of 10% of the gross total income.
The limit is to be applied to the adjusted gross total income. The 'adjusted gross total income' for this purpose is the gross total income (i.e. the sub total of income under various heads) reduced by the following:
Amount deductible under Sections 80CCC to 80U (but not Section 80G)
à Exempt income
à Long-term capital gains
à Income referred to in Sections 115A, 115AB, 115AC, 115AD and 115D, relating to non-residents and foreign companies.
Should any documents be maintained by the donors for the purpose of claiming tax benefits?
Yes, the donor is required to maintain a proper receipt as evidence of the payment of donation.
Can an individual claim benefits for donations made, if he doesn't hold the necessary documentary evidence?
In order to claim the benefit for donations made, it is necessary to furnish along with the return of income, the proof of payment made towards the donation to the eligible institution or fund. Tax benefits cannot be claimed without aforementioned documents.
Can NRIs claim tax benefits for donations made to charities?
Yes, NRIs are also entitled to claim tax benefits against donations, subject to the donations being made to eligible institutions and funds.
Can employee claim deduction u/s 80G if donation was deducted from salary and certificate is on the name of employer?
Yes, employees can claim deduction u/s 80G provided a certificate from the Employer is received in which employer states the fact that
The Contribution was made out from employee's salary account.
Let's see examples
Gross Total income for Rs.5 lakh in a year. (GTI)
Investment u/s 80C is Rs. 1,00,000 for that year. (Deduction u/s 80C)
Solution:
Gross Total Income (GTI) = Rs. 5,00,000.
Adjusted GTI = Rs. 5,00,000 – Rs. 1,00,000 (u/s 80C) = Rs. 4,00,000.
(i) 10% of adjusted Gross Total Income = Rs. 40,000
(ii) 50% of donation = Rs. 1,00,000
Thus, in this case, you would be able to claim Rs. 40,000 as deduction under section 80G.
Another Example
If you have income of Rs. 5 lakh for a year. (GTI)
Your investment u/s 80C is Rs. 1,00,000 for that year. (Deduction u/s 80C)
Donation made to Maharashtra Chief Minister's Earthquake Relief Fund for Rs. 90,000 which has no restriction for maximum of 10% of adjusted GTI. and 100% are eligible for deduction u/s 80G
Solution
Gross Total Income = Rs. 5,00,000.
After Adjusted 80C = Rs. 5,00,000 – Rs. 1,00,000 (deduction u/s 80C) = Rs. 4,00,000.
Solution
Rs. 90,000 is full allowable as deduction. there will be no restriction of 10% of GTI.
Useful Links for deduction u/s 80G
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