Wednesday, April 4, 2012

Section 80G of the Indian Income Tax


The new financial year has just started. All the Salaried employees among us would be busy submitting investment declarations or proposed investments to their respective employers to avail tax exemptions. One of the less commonly used sections of our Income Tax is "Section 80G". Not many of us know about this Section and most importantly most of us don't even use it. The purpose of this article is to throw some light on this section.

Section 80G

Section 80G of the Indian Income Tax Act of 1961 provide tax relief to the Citizens of India on the amounts donated as contributions to Approved Charitable Organizations. This means that, money that we donate to charitable organizations can be used to avail income tax exemption.

Who can Utilize Section 80G?

Any person, who earns an Income in India and files his Tax Returns in India is eligible to utilize this Section 80G.

Contributions that cannot be used for Section 80G:

Contributions to Political Parties in India or to any Charitable Organizations abroad are not eligible for Section 80G exemptions. Only donations made to prescribed organizations and institutions qualify for deduction.

Also, donation in Cash only is eligible for tax benefits. Any donations you do in kind like clothes, food etc is not eligible for deduction. So, if you visited an Orphanage and took up the food cost of all the residents for a week by spending Rs. 50,000/- this noble deed of yours will not get you any tax exemptions.

"All donations are not eligible for tax benefits. Tax benefits can be claimed only on specific donations i.e. those made to approved institutions and that too only when done by Cash or Cheque."

Documents Required to Avail the Exemption:

A signed & stamped receipt issued by the Charitable Institution is Mandatory to avail exemption under this Section. The most important requirement is the Registration number issued by the Income Tax Department under Section 80G. This number must be printed on the receipt. Without this the receipt is "Not Valid"

The Receipt must have your name in exactly the same format/spelling as in your PAN Card. Also, the amount donated must be written in both numbers and words.

Maximum Allowed Deduction under Section 80G:

Though donations to charitable institutions is a noble cause, there is an upper limit on how much amount we donate can be used for tax exemptions. The general rule is

"50% of the amount donated subject to a maximum of 10% of the Total Taxable Income of the Individual can be donated and exempted under Section 80G of the Indian Income Tax act of 1961".

A point to note is that, any donations done beyond the allowed limit is not considered for tax purposes.

However, there are some donations, where this limit of 50% of the donation does not apply. So, such donations can be exempt from your Tax Liability to the full amount (Subject to the 10% upper limit however)

For ex: If you donated Rs. 1.5 lakhs to the Prime Minister’s Relief Fund, 100% of your donation is eligible for tax exemption with an upper limit of 10% of your total salary. So, if your net taxable salary is 10 lakhs per year, 1 lakh of your donation will be considered for tax purposes and your total taxable salary will come down to 9 lakhs. But, the additional Rs. 50,000/- will not be considered for your tax calculation.

If you had done the same Rs. 1.5 lakhs donation to a registered NGO in your locality, then only 50% of the amount which is Rs. 75,000/- is exempt from tax. So, your total taxable salary will become Rs. 9.25 lakhs.

Donations that Qualify for Full Exemption

Donations done to Government Trusts/Funds like "The Prime Ministers National Relief Fund" or "The National Defense Fund" or "The Gujarat Chief Ministers Earthquake Reliefe Fund" etc qualify for this full 100% exemption. The list is very long and almost all of the Government Owned/Run Charitable Foundations feature in this list.

Private Charitable Institutions do not come under this category. The limit of 50% as explained in the previous paragraph is applicable for donations done to private charities.

Final Summary:

To Wrap Up, Donating to Charity is a Noble Deed and if that donation provides us with tax exemptions, then its even better. So, if you are one of those noble tax payers, who take pride in donating to Charitable Institutions, do it with your Head Held High and dont forget to Avail your Tax Exemption...

Happy Donating!!!

5 comments:

  1. Very nice and detailed explanation.thanks for the information.as you said donation is a noble cause and better to get tax exemption for those donations.

    ReplyDelete
  2. I dont see section 80G under investment proof of IT companies.

    ReplyDelete
    Replies
    1. 80G is available for everyone in India. Which company do you work for? By, I dont see section 80G, do you mean you cant find it in your company's internal tax submission website? IF so, contact your HR or Finance.

      Note: I worked for IT Cos' in India for many years and have used 80G tax exemption many times

      Delete
    2. Even my co. does not allow declaring investments planned under section 80G. As per what informed to me the tax benefits under 80G should be claimed during IT return. If any one has more info on this pls share.

      Delete
    3. yes that is correct. COmpanies only provide a certificate saying amount donated. also with a note
      The company has not given the benefit of Section 80G for the above mentioned contribution
      while calculating the tax deduction from the salary.

      Delete

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