Contributions to charity can be an excellent way to contribute to society and also decrease your tax liability in India. Here’s an overview of the pertinent sections of the Income Tax Act:
Section 80G
This is the primary provision for claiming deductions on donations made to designated charitable institutions or funds. The deductible amount can vary based on the type of institution and the nature of the donation, ranging from 50% to 100% of the donated sum, subject to specific limits. Here’s an overview of the essential aspects of Section 80G:
Eligible donations: This section encompasses donations made to diverse charitable organizations and funds sanctioned by the Income Tax department. These may include:
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- Relief funds established by the government.
- Charitable institutions dedicated to education, medical relief, environmental conservation, or rural development.
- Specific trusts and societies.
Deduction percentage: The deductible amount varies based on the type of institution and the donation’s nature. It can range from 50% to 100% of the donated sum, subject to specific limits.
Claiming the deduction: To avail of the deduction, you must possess a valid donation receipt from the registered charitable institution. This receipt should indicate:
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- The donated amount.
- The institution’s PAN
- The purpose of the donation
Cash donations over ₹2,000 are not eligible for deduction under Section 80G. Donations should be made via cheque, draft, or online transfer. You can avail of the deduction for donations made in the respective financial year when filing your Income Tax Return (ITR).
Section 80GGA
This section provides an extra deduction of 100% for donations made to particular entities, like political parties and scientific research institutions. While Section 80G encompasses a broader range of eligible charities, Section 80GGA specifically targets donations made towards:
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Scientific research: This covers institutions involved in scientific research or universities/colleges with government-approved research programs.
Rural development: Donations to approved programs or institutions dedicated to rural development initiatives are eligible under this section.
As this section permits a full deduction on the donated amount, the entire sum you contribute is subtracted from your taxable income, providing substantial tax savings. Additionally, there is no maximum limit on the donation amount you can claim under Section 80GGA, unlike certain deductions under Section 80G. This enables larger contributions towards these particular causes.
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Like Section 80G, cash donations over ₹2,000 are not eligible for deduction under Section 80GGA. Donations should be made via cheque, draft, or online transfer. Individuals and Hindu Undivided Families (HUFs) are eligible to avail of a deduction under this section. This deduction does not apply to businesses or professions. Also, ensure you obtain a valid donation receipt from the approved institution to claim the deduction.
Sections 80GGB & 80GGC
Sections 80GGB and 80GGC of the Income Tax Act, 1961 are newer provisions offering tax benefits for donations made to specific entities: Political parties and electoral trusts. Although they have this commonality, there are differences in eligibility for claiming the deduction. However, the main focus of introducing these relatively new sections is on promoting rural development or facilitating skill development courses.
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Section 80GGB enables Indian companies (including registered businesses) to avail of a deduction for donations made to political parties registered under Section 29A of the Representation of the People Act, 1951.
There is no maximum limit on the donation amount a company can contribute under Section 80GGB. Nonetheless, cash donations are not permitted. Donations should be made via cheque, demand draft, or electronic transfer. To claim the deduction, companies must file their ITR and comply with the documentation requirements outlined in the Income Tax Act.
Here are some crucial points to consider when claiming deductions for charitable donations under these sections:
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Donation receipt: To claim the deduction, you need a valid donation receipt from a registered charitable institution. The receipt should clearly state the donated amount, the institution’s PAN, and the purpose of the donation.
Cash donations: Donations exceeding Rs. 2,000 in cash are not eligible for deduction under Section 80G. It’s advisable to make donations via cheque, draft, or online transfer.
Filing ITR: You must claim the deduction for donations made in the respective financial year when filing your ITR.
By familiarizing yourself with Sections 80GGB and 80GGC, you can make educated choices regarding political contributions and possibly lessen your tax liability.
