Section 80G of the Income Tax Act, 1961, helps people save taxes by giving money to charities. When you donate to eligible charities, you can deduct between 50% and 100% of the amount donated from your taxes. But there are rules and limits to follow in order to claim these deductions.
Any individual or organization that has donated money to specific funds, institutions, or associations can claim a deduction under Section 80G. This applies to both resident and non-resident taxpayers. However, this deduction can only be claimed by taxpayers who have chosen to follow the old tax regime. Taxpayers who have opted for the new tax regime are not eligible for this deduction.
When it comes to claiming deductions under Section 80G, payments to certain institutions can be eligible for either 50% or 100% deduction without any qualifying limit. However, there are cases where you need to determine the maximum qualifying limit for deduction. If the total amount you have donated to these specified funds or institutions exceeds 10% of your adjusted gross total income (GTI), any amount beyond this 10% limit will not be eligible for consideration.
The adjusted gross total income is computed after reducing the following from your gross total income:
(a) Amount deductible under Section 80C to 80U (Except Section 80G)
(b) Share of profit in Association of Persons (AOP) eligible for rebate under Section 86
(c) Long-term capital gains
(d) Short-term capital gain arising from securities specified under Section 111A
(e) Any income referred to in Sections 115A, 115AB, 115AC, 115ACA, 115AD and 115D
Let’s break down the example to make it simpler:
- Gross Total Income (GTI): Rs. 10 lakh
- Donations made to NGOs eligible for 80G deduction: Rs. 90,000
- Deductions claimed under Section 80C: Rs. 1.5 lakh
- Short-term capital gains from selling equity shares: Rs. 1 lakh
- Compute Adjusted Gross Total Income (AGTI):
- GTI minus deductions under Section 80C and short-term capital gains: Rs. 10 lakh – Rs. 1.5 lakh – Rs. 1 lakh = Rs. 7.5 lakh
- Calculate Qualifying Limit for 80G deductions:
- Qualifying limit is 10% of AGTI: 10% of Rs. 7.5 lakh = Rs. 75,000
- Determine the maximum amount allowable for 80G deductions:
- It is 50% of the lower value between the amount donated (Rs. 90,000) and the qualifying limit (Rs. 75,000)
- In this case, the lower value is the qualifying limit of Rs. 75,000
- Therefore, the maximum 80G deduction is 50% of Rs. 75,000, which is Rs. 37,500
So, you can claim a deduction of Rs. 37,500 under Section 80G for the donations made to eligible NGOs.
To claim a deduction under Section 80G, you can make donations in the form of cash, cheque, or electronic modes. However, cash donations exceeding Rs. 2,000 are not eligible. Neither are donations made in kind (non-monetary items).
In order to claim a deduction, you must donate to a fund or institution that meets the conditions specified in Section 80G(5) of the Income Tax Act. One of the conditions is that the recipient must file a donation statement with the Income-tax Department and provide the donor with a Form 10BE certificate specifying the amount donated during the year. In order to support the deduction you’re claiming while filing your income tax return (ITR), you will need a certificate in Form 10BE as evidence.
Funds eligible for 100% deduction without limit
(i) National Defence Fund
(ii) PM National Relief Fund
(iii) PM Citizen Assistance and Relief in Emergency Situations Fund (PM CARES FUND)
(iv) National Children’s Fund
(v) CM Relief Fund or the Lieutenant Governor’s Relief Fund
(vi) Zila Saksharta Samiti
(vii) Army Central Welfare Fund
(viii) Indian Naval Benevolent Fund
(ix) Air Force Central Welfare Fund
(x) Andhra Pradesh CM Cyclone Relief Fund
(xi) National Sports Fund
(xii) National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities
(xiii) Swachh Bharat Kosh (not being in pursuance of CSR)
(xiv) Clean Ganga Fund (not being in pursuance of CSR) – Only to the resident assessee
(xv) National Fund for Control of Drug Abuse
(xvi) National Illness Assistance Fund
(xvii) National Blood Transfusion Council or State Blood Transfusion Council
(xviii) Fund set up by a State Government for the medical relief to the poor
(xix) National Cultural Fund
(xx) Fund for Technology Development and Application
(xxi) National Foundation for Communal Harmony
(xxii) PM Armenia Earthquake Relief Fund
(xxiii) Africa (Public Contributions – India) Fund
(xxiv) CM Earthquake Relief Fund, Maharashtra
(xxv) An university or educational institution of National eminence approved by the tax authorities
(xxvi) Fund set up by the State Government of Gujarat exclusively for providing relief to the victims of earthquake in Gujarat.
Funds eligible for 50% deduction without the maximum limit
(i) Jawaharlal Nehru Memorial Fund
(ii) PM Drought Relief Fund
(iii) Indira Gandhi Memorial Trust
(iv) Rajiv Gandhi Foundation
The Finance Act of 2023 has amended Section 80G to state that donations made to the following name-based funds: Jawaharlal Nehru Memorial Fund, Indira Gandhi Memorial Trust, and Rajiv Gandhi Foundation, will no longer be eligible for deduction. Therefore, any donations made to these three funds on or after 01-04-2023 will not be considered.
Funds eligible for 100% deduction subject to the maximum limit
(i) Family Planning Association of India/Red Cross Society of India
(ii) Government or any approved local authority, institution or association to be utilized for the purpose of promoting family planning.
(iii) Indian Olympic Association or to any other notified association or institution established in India for the development of infrastructure for sports and games in India or the sponsorship of sports and games in India. However, the deduction for donations to these institutions is allowed only to a company and not to individuals.
Funds eligible for 50% deduction subject to the maximum limit
(i) Notified temple, mosque, gurudwara, church or other place (for repairs or renovation)
(ii) Government or any local authority to be utilized for any charitable purpose other than the purpose of promoting family planning
(iii) Any corporation specified in Section 10(26BB) for promoting interest of minority community
(iv) Any authority constituted in India either for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns, villages or both.
(v) Any other fund or any institution fulfilling the conditions as specified in Section 80G(5)
The list of institutions approved by the Principal Commissioner or Commissioner of Income Tax that are eligible to receive donations under Section 80G is updated periodically by the income tax department. Before giving a donation, one must confirm whether the institution is on the approved list at the time.
Taking advantage of Section 80G can certainly help save money on your taxes. However, there are a lot of factors to consider. You’re going to want to really do your homework before you decide to jump into this particular tax loophole.
