Section 80G - Deduction under Section 80G

Introduction

Charitable organizations do tireless work to help the less fortunate, needy sections of the society. To support their work, the government offers tax deductions to citizens for contributions and donations made toward charities. Section 80G of the Income Tax Act governs the specific rules and the overall scope of the tax deductions on charity contributions.

Charity contributions in India have shown an upward spike over time due to increasing private contributions. Notice the increase in the red slice from 2011 to 2016 - that’s the increase in contributions from individual Indians. Source: Ministry of Corporate Affairs.

1) What is Section 80G?

Section 80G of the Income Tax Act lets you claim tax deductions on charitable contributions made in the financial year while filing your Income Tax Returns. This can put you in a lower tax bracket and reduce your tax liabilities. A unique feature of Section 80G is that for a certain number of charities, there is no upper limit to how much contributions can be tax-deductible while filing ITR.

2) Deduction under Section 80G - Terms & Conditions

Certain terms and conditions need to be met for claiming tax deductions under Section 80G. Three of the most important conditions are:

1. Tax deductions cannot be claimed for contributions over ₹2,000 made in cash. These changes were put in place by the budget of 2017.

2. Contributions made in kind are not eligible for tax deductions under Section 80G of the Income Tax Act.

3. Contributions made to trusts registered outside India are not eligible for tax deductions.

3) Eligibility for Claiming Deductions under 80G

The eligibility criteria for Section 80G is quite wide. In order to claim tax deductions under Section 80G, you would have to meet the following eligibility criteria:

• Individuals and HUFs can claim deductions on their contributions

• NRIs contributing to applicable trusts can claim deductions

• The taxpayer must submit relevant proof of their contributions

• The contribution to the charitable organisation must be made from one’s taxable income. Donations made from non-taxable income will not be considered for deductions.

4) Claiming 80G Tax Deductions

A proof of payment is of paramount importance when claiming deductions under Section 80G for charitable contributions. For a successful tax rebate, ensure that you collect a receipt of your donation from the charity that you donated to.

The receipt needs to contain the following information:

1. Name of the donor

2. The amount that was donated

3. Name, Address, and PAN of the benefactor of the donation

4. Registration number of the charity

5) Donations Permitted under Section 80G

As per Section 80G, you can claim deductions under two broad categories:

• Donations with an upper limit

• Donations without an upper limit

These two categories can be further subdivided:

• Donations without an upper limit: Here, 50% or 100% of the donations can be deducted, as per the charitable institution donated to, without another limitation.

• Donations with an upper limit: Here, too, 50% or 100% of the donations can be tax deductible, in accordance with the charitable entity the money is donated to. However, the amount deducted is limited to only 10% of one’s gross total income.

Here are some examples of charitable organisations one can contribute to and the deduction limit, as per prevailing tax norms:

6) Documents Required to Claim Deduction under Section 80G

While filing tax returns, if one wishes to claim income tax deduction under Section 80G, then the following documents need to be submitted alongside your ITR.

1. Stamped Receipt: The donation needs to be authenticated with a stamped receipt from the benefactor organization.

2. Form 58: To claim a 100% tax deduction for your donations at the end of the financial year, remember to download, fill, and submit Form 58. You can download it here.

7) Key differences between sections 80G, 80GGB, 80GGC

While filing tax returns, people sometimes conflate Section 80G with Section 80GGC or section 80GGB. While all three of these sections have to do with claiming tax deductions for donations made in the previous financial year, they have the following differences:

1. Section 80G is for claiming tax deductions for donations made to charitable organizations and trusts.

2. Section 80GGB is for claiming tax deductions for donations made to political parties by registered Indian companies.

3. Section 80GGC is for claiming tax deductions for donations made to political parties by other categories of taxpayers such as individuals, HUFs, etc.

Conclusion

The 2020 budget put a simpler tax code in place that removed 70 odd deductions and exemptions. The new tax code introduced by the budget 2020 is optional, however - people can choose to continue to file returns under the older system if they can get greater tax savings with it.

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