Abstract
Are you a Good Samaritan who is forever trying to help with donations? Do you know you’re entitled to tax relief for your good work? Naushad Panjwani, Chartered Accountant, helps you to be an informed tax payer.
To be eligible for a deduction under section 80G, you must ensure that the charity or fund you donate to is approved. Donations made to foreign trusts don’t qualify for deduction.
The tax authorities cannot deny you a deduction if recognition to the charity is withdrawn after the date on which you made the donation.
Every time God tests us with a natural disaster -- earthquakes, floods, tsunami – the good Samaritans among us automatically reach for their cheque books with no aim other than to help. But how many of us know about the tax benefits we can get if our donations are made to approved institutions and funds?
While tax deductions are not at the top of your mind when disaster strikes, it’s good to know you can gain even as you give. Take a look at the different sections of the Income Tax Act that allow you to claim deductions on donations.
Section 80G
Remember, to be eligible for a deduction under this section, you must ensure that the charity or fund you donate to is approved. The Government periodically releases a list of approved charitable institutions and funds eligible to receive donations that qualify for deduction. The list includes trusts, societies and corporate bodies incorporated under Section 25 of the Companies Act 1956 as non-profit companies. Donations made to foreign trusts don’t qualify for deduction under this section.
Hitherto you could not claim deduction for donations made to political parties for any reason, including paying for brochures, souvenirs or pamphlets brought out by such parties. However now 100% of the contributions made to any political party shall be allowed as a deduction u/s 80GGB for companies making such contributions and u/s. 80 GGC for other assessees.
Documentation: Though you’re not legally required to furnish proof for the deduction claimed, it’s a good idea to submit a receipt from the charity along with your tax return. The reason is simple: you may lose the deduction if it’s later proved that the charity was not on the approved list. But if you provide a receipt and the charity shows it is eligible to collect donations under Section 80G, you’re not responsible to prove the charity’s bona fides. The tax authorities cannot deny you a deduction if recognition to the charity is withdrawn after the date on which you made the donation.
To compute the amount of deduction you can claim under this section, first arrive at a gross qualifying amount, which is the sum of all donations you’ve made to eligible charities. Of these donations, determine those to be restricted to 10% of the gross total income (GTI) as reduced by incomes exempt under the IT Act, deductions available under Chapter VI-A, long-term capital gains and incomes covered by Sections 115A, 115AA, 115B, 115BB, 115AB, 115AC 115ACA, 115AD and 115D. Restrict the aggregate of these amounts to 10% of your GTI. You may also have made donations to which the ‘10% of GTI’ rule may not apply. Of all donations, some may qualify for 100% deduction, while others will qualify only for 50%. Compute this, and you’ll arrive at the deduction you are eligible for.
The entire donation made to an approved trust or organisation can be claimed as deduction, regardless of the end use of the funds. Donations to funds like the Prime Minister’s National Relief Fund can only be taken into account by your employer while deducting tax from your salary. Submit a copy of the donation receipt to your employer. In some cases, where a collective contribution is made, it may not be possible for individuals to obtain separate receipts, as the contribution is in the form of a consolidated cheque. The claim in respect of such donations will be eligible on the basis of the certificate issued by the employer.
Sections 35AC, 35CCA
These sections allow you to claim deductions if you have income under the head ‘business or profession’. Since donations are treated as business expenditure, you can claim deductions under these sections even if you have a loss, which is not possible under Section 80G.
Under Section 35AC, for instance, payment made to a public sector company, local authority or an institution approved by the National Committee for carrying out an eligible project or scheme can be claimed as a business deduction even though it might not have been incurred for the purpose of your business or profession. If the assessee is a company, it can claim deduction on any expense incurred directly on an eligible project or scheme. In both cases, a certificate from the institution or trust showing the donation must be attached to the return of income.
You can also claim deduction on sums paid to approved associations and institutions for undertaking rural development plans (Section 35CCA). While you make a claim for deduction under Section 35CCA, make sure you attach a certificate from the association, certifying that the programme was approved by the prescribed authority before 1 March 1983, and that work on that project began prior to that date.
Section 35(1)
Under this section, you can claim deductions when you donate to an approved association, university or college for scientific or statistical research, or for research in the social sciences. You can also claim under this section when you donate to the National Urban Poverty Eradication Fund.
Under this section, assessees who don’t have income under the head ‘business or profession’ can claim deduction for donations made to approved entities. For entities covered in sections 35AC, or 35CCA, the conditions of those sections will apply. There’s a possibility that the same amount appears to be covered under more than one section mentioned above. But remember, you cannot claim a deduction for the same payment under two different provisions.