written by Khatabook | November 23, 2021

What are Charitable Donations?

charitable donation is a donation of cash or property made to non-profit organisations to assist them in achieving their objectives, for which the giver receives nothing in return. These donations can be made to several institutions across the country. You can also claim Section 80G deductions under the Income Tax Act.

Income Tax Benefits of Charitable Donations - Tax-Deductible Donations

The Charitable Donations made under Section 80G of the Income Tax Act 1961 are eligible for tax deductions. Under Section 80G, the contributions can be made to several relief funds and charity organisations recognised by the government. Whether an individual, a corporation, a partnership, or another entity, any taxpayer can claim this deduction. 

However, it is essential to note that the donation must be made by any mode other than cash, whether by bank transfer or electoral mode, etc. Donations in cash are allowed for an amount below Rs. 2000. Also, the donation made must be for a philanthropic purpose, for the welfare of society, and not for benefiting any individual. This is one of the main conditions for claiming deduction under the Income Tax Act,1961.

Why Are Charitable Donations Important?

  1. Helping the World at Large - The charity money's initial goal is to make the world a better place. By donating, the needy will be able to obtain the resources they require to meet their fundamental needs.
  2. Helping Various Organisations- There are numerous non-profit organisations dedicated to various causes. The majority of them aim to alleviate poverty by assisting individuals in developing countries. Your non-profit donation will help such groups in purchasing clothing, food, and clean water for families, as well as delivering the goods.
  3. Helping the society- One of the main goals of charity donations is to assist the underprivileged. People from undeveloped countries are not the only ones who are poor. Many individuals in our neighbourhood require our assistance in various ways, such as paying for impoverished children's education, assisting them in getting their daughters married, etc.
  4. Poverty can be minimised/reduced- One of the most important reasons to donate is to help alleviate poverty worldwide. Poverty was 44.3% in 1981, but it had since dropped to 9.2% in 2017. It's all thanks to donations and charitable organisations.
  5. Peace of mind/soul- One of the most significant advantages of assisting the underprivileged is that you will have peace of mind due to your charitable contributions. 
  6. Benefits in taxation- When you donate money to non-profit organisations, you will be eligible for a tax deduction. You will receive a taxable receipt from the charity at the end of the year, which you may save with your other tax paperwork, and your tax amount will be deducted.

Different Modes of charity donation to claim deduction under Section 80G of the Income Tax Act, 1961

  • The Income Tax Act does not provide for a deduction for donations of food, clothing, or medications.
  • No deduction shall be allowed for any sum exceeding rupees 2000 unless any other mode pays such sum than cash, i.e. donations in cash of amount more than Rs 2000 are not allowed.
  • Where an assessee has claimed any deduction and is allowed to them, then the exact amount will not attract any deduction under any provision of the Act. If you claim deduction under one section, you cannot claim it under any other section.

What is the criteria to claim deduction under Section 80G of the Income Tax Act, 1961?

All donations do not attract 100% tax deductions. Some of them are restricted to only 50%, whereas some other deductions also attract the same deduction but to a maximum of 10% adjusted Gross Total Income of the taxpayer.

Quantum of Deduction

There are four categories of deduction which can be claimed by the assessee, which are discussed below:

100% Tax Deductible Donations without any limits

  • National Defence Fund set up by the Central Government
  • Prime Minister’s National Relief Fund
  • The Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force Central Welfare Fund, Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996
  • Zila Saksharta Samiti constituted in any district under the chairmanship of the Collector of that district.
  • National Cultural Fund
  • National Sports Fund
  • National Blood Transfusion Council or to any State Blood Transfusion Council
  • National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation, and Multiple Disabilities
  • National Foundation for Communal Harmony
  • An approved university/educational institution of National eminence
  • Fund set up by a State Government for the medical relief to the poor
  • National Illness Assistance Fund
  • Fund for Technology Development and Application
  • National Children’s Fund
  • Chief Minister’s Earthquake Relief Fund, Maharashtra
  • The Maharashtra Chief Minister’s Relief Fund during October 1, 1993, and October 6, 1993
  • Prime Minister’s Armenia Earthquake Relief Fund
  • Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund concerning any State or Union Territory
  • Africa (Public Contributions – India) Fund
  • Swachh Bharat Kosh (applicable from FY 2014-15)
  • National Fund for Control of Drug Abuse (applicable from FY 2015-16)
  • Any fund set up by the State Government of Gujarat exclusively for providing relief to the victims of the earthquake in Gujarat
  • Clean Ganga Fund (applicable from FY 2014-15)

Also Read: All About Section 80GG Denoting Claim Deduction for Rent Paid

50% Tax Deductible Donations without any limit

The donations made to the following funds are available for 50% tax deduction-

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

100% Tax Deductible Donations subject to qualifying limit

The donations made by the companies to the following organisations or associations are eligible for 100% deductions subject to the qualifying limit-

  • To the Indian Olympic Organisation or any other designated association 
  • To an institution that has been created in India for the development of sports and games infrastructure in India, or sponsorship of sports and games in India.
  • To the government or any approved local authority, institute, or association to be utilised to promote family planning.

50% Tax Deductible Donations subject to qualifying limit

  • Any notified temple, mosque, gurudwara, church, or other location requires repairs or redevelopment.
  • Any authority established in India for the aim of dealing with and meeting housing needs, or for the planning, development, or enhancement of cities, towns, or villages, or both
  • Any company which is constituted to promote minority community interests, Government or any local authority, to be used for any charitable purpose other than encouraging family planning. Such a Company should be covered under Section 10(26).
  • Any other fund or institution that meets the requirements of Section 80G(5).

Qualifying limit for charity donations

The deductions claimed in the third and fourth categories should be added together. However, the total should only be up to 10% of the adjusted gross total income. 

Deductions eligible for a 100% deduction would be reduced to the maximum allowable deduction first, and then a 50% deduction of the rest would be permitted. 

Steps for calculation of Qualifying Limit for charity donations

Step 1: The first step is the calculation of the Adjusted Total Income. It is calculated by reducing the following amounts from the Gross Total Income (GTI)

  • Incomes on which income tax is not payable.
  • Short Term Capital Gain calculated as per Section 111A
  • Long Term Capital Gain calculated as per Section 112 & 112A
  • All the deductions are covered under Chapter VI-A. However, do not reduce the deduction under Section 80G.

Step 2:-The next step is to calculate 10% of the Adjusted Total Income, which has been calculated above.

Step 3: Then calculate the actual amount of donation, which is subject to the qualifying limit 

Step 4: Lower of step 2 or step 3 is the maximum permissible donation

Step 5: The said deduction is adjusted first against donations qualifying for 100% deduction. After that, 50% of the balance qualifies for deduction under section 80G.

Example: Mr. Aman Has Rs 10 lakhs Gross Total Income consisting of STCG 1lakhs and LTCG 112 – Rs 1 lakhs. He has made the following payments-

  1. LIC premium 50000
  2. Medical Premium 20000
  3. Donation to PM Care Fund Rs 10000 by cheque
  4. Donation to Approved Institution for family planning – Rs 40000
  5. Donation to Public Charitable Trust – Rs 50000

Calculate Qualifying Limit and Donation eligible.

Ans – Adjusted GTI =  Rs 10 lakhs (GTI)  – RS 1 lakh (STCG) – Rs 1 lakh(LTCG) – 50000(LIC)  – 20000 (Mediclaim) = Rs 7,30,000

Qualifying Limit 10% of Adjusted GTI i.e. 7,30,000 * 10% = 73,000

Maximum 73000 can be claimed as a deduction. First Rs 40000 contribution for family planning which is allowed 100% deduction will be exhausted, then the balance of Rs 33,000 is eligible for settlement. However, out of a donation to public trust maximum that can be claimed is 50% of 50,000 i.e. Rs 25,000 

Hence total donation eligible is Rs 40000 + 25000 = Rs 65,000 is within the qualifying limit of Rs 73,000/-

Electoral Trusts

Electoral Trusts were proposed in 2017 as a way to increase transparency in the political finance system. Along with guaranteeing openness, citizens may profit from it as well. These electoral bonds are sold by the State Bank of India and its branches. Sections 80 GGC and 80 GGD of the Income Tax Act provide a 100% deduction for donations to political parties.

Details required for claiming the tax benefit for a tax-deductible donation 

The deduction can be claimed by a taxpayer regardless of their source of income and can be applied to all assessees, i.e., a resident Indian, a HUF, a company, an NRI, and others. To claim such deduction in your income tax return, the following details have to be submitted:

  1. Name of the donee (i.e. the institution which has received the donation)
  2. PAN of the donee (i.e. the PAN of the institution to whom donation has been made)
  3. Address of donee (i.e. the address of the institution to whom donation has been made)
  4. Amount of contribution
  5. Aadhaar
  6. Bank account details
  7. Form 16
  8. Investments details
  9. A Stamped Receipt
  10. The receipt must include the Income Tax Department's valid Registration Number for the Trust. This registration number is only valid for a limited time (usually two years) and can be renewed. The duration of the registration number's validity must be included in the receipt.

How to register yourself as a charitable institution?

  • The application is submitted online at the Income Tax portal in the prescribed form
  • The registration is valid for a period of 5 years
  • Following contents need to be provided in Form 10A while making the application

1.    Name of the Institution

2.    PAN details of such Institution

3.    Address of the institute

4.    Email ID and mobile no. of Director / Managing Partner

5.    The Trust's Legal Status

6.    The Trust's Purposes

7.    If applicable, the date on which the objects were modified.

8.    Whether a previously approved application is rejected or the registration is revoked? If so, please provide details about the order cancellation.

9.    If the applicant is registered under the Fair Credit Reporting Act of 2010? If yes, please provide more information.

  • Notes on activities of the institution of the fund since its inception or during the last three years, whichever is less
  • The commissioner on receipts of above documents and checking them may call for any further information or issue a certificate on being satisfied for a certain no. of years.

FORM 10A must be accompanied by a list of documents

  • Self-certified copies of the instrument founding the trust or establishing the institution.
  • Self-certified copy of proof of the creation of trust or organisation of institution other than under an instrument.
  • Self-certified copy of proof of adoption or modification of the objects, if any.
  • Copies of the trust/annual institution's reports for the three most recent financial years—all certified documents.
  • Self-certified copies of any existing order granting registration under section 12A or section 12AB.
  • Copies of any application rejection orders, if any- Self Certified.

During registration, the client must provide the following documents, which must be attached to FORM 10A

  • Memorandum of Association (MoA) / Trust Deed and Registration Certificate (two copies- self-attested by the Managing Trustee).
  • NOC from the Landlord in the location of the registered office (if the place is rented).
  • A copy of the Trustee's PAN card.
  • Bills for electricity, property taxes, and water.
  • Evidence of completed welfare activities and a progress report on the same for the past three years or since inception.
  • Books of Accounts, Balance Sheet, and ITR (if any) for the last three years or from commencement.
  • Donors' names, PANs, and addresses are listed.
  • In the following manner, list the members of the governing body or members of the trust/institution.
  • Original Registration Certificate and MoA are verified using a Trust Deed.

Any other information or documents that the Income Tax Department may request.

Also Read: Section 80EE: Home Loan Tax Incentives Under the Income Tax Act 1961

Conclusion

Many people do not know about the advantages Charitable Donations may provide. They need to be updated about the Charitable Donations, tax-deductible donations, and their benefits. We hope the article has given you all the information about the meaning and definition of charitable donation, the benefits available under the Income Tax Act for donations, tax-deductible donations, and the procedure to claim exemptions as well as the eligibility for exemptions.

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FAQs

Q: Which section of the Income Tax Act,1961 are donations eligible for a tax deduction?

Ans:

The charitable donation is eligible for tax deduction under Section 80G of the Income Tax Act 1961.

Q: Are donations to the Electoral Trust allowed as a deduction?

Ans:

A 100% deduction in the amount can be received under sections 80 GGC and 80 GGD of the Income Tax Act by donating to political parties.

Q: What are the details required to be submitted for obtaining the tax benefit of making charitable donations?

Ans:

Some of the details required to be submitted for obtaining the tax benefit of making charitable donations are the name, address, PAN of the donee along with Form 16, the stamped receipt, etc.

Q: Are donations in cash allowed under income tax?

Ans:

Yes, donations are allowed in cash but only up to Rs 2,000/-

Q: Are charitable donations exempt under income tax?

Ans:

Yes, they are exempt from some limitations, which can be referred to in detail discussed in this article. 

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