How to donate for income tax exemption: a detailed guide

AS a donor, one of the most rewarding aspects of giving to a non-profit organisation is the knowledge that your donation is making a difference and adding value to the lives of others. But did you know there is an added bonus? That your contribution to a cause close to your heart can also have a positive impact on your own finances with donation tax exemption? Under Section 80G of India’s Income Tax Act, donations made to most non-profit organisations are eligible for income tax exemption. This means that donors can claim a reduction in their taxable income for a certain percentage of the total amount of donation made.

Tax Benefits with Donations 

Donations to certain charitable organisations in India are tax deductible under Section 80G of the Income Tax Act. These tax advantages include a deduction for the amount of the donation from the taxpayer’s taxable income. The percentage of the donation that can be deducted is determined by the organisation or institution to which the donation is made. Furthermore, certain donations, such as those made to political parties, are tax-deductible under Section 80GGC of the Income Tax Act. The taxpayer must have proof of the donation in the form of a receipt from the organisation in order to claim the tax benefits.

What is Section 80G of the Income Tax Act?

In India, donations to certain charitable organisations and institutions are deductible from taxable income under Section 80G of the Income Tax Act. The deduction is limited to a specific percentage of the donation, which varies depending on the organisation or institution to which the donation is made. The taxpayer must have proof of the donation in the form of a receipt from the organisation in order to claim the deduction.

Section 80G eligibility

To claim donation tax exemption, the nonprofit organisation you are making a donation to must hold a valid 80G certificate from the Income Tax Department. This certificate is granted to organisations that have met certain criteria such as having a bonafide registered charitable trust or society, a PAN card, having a proven track record of charitable work and record of audited accounts duly filed with the authorities.

Earlier the 80G certificate used to be granted in perpetuity but the Finance Act 2020 made it mandatory for NGOs to renew their registration every five years. So to be able to claim your donation tax exemption, make sure the nonprofit organisation you are giving to has a valid 80G certificate.

Calculating the donation tax deduction

Income tax donation exemption can be claimed by individuals, corporations, institutions based on funds given to charities. The amount of donation tax deduction is either 50% or 100% of the total donation amount, with or without a qualifying limit stipulated in Section 80G. It is also determined by the type of donation and the cause of the nonprofit organisation. 

For example, contributions to the Prime Minister’s Relief Fund (PMRF) will get the income tax donation exemption of 100% with no restrictions. The PMRF was set up in 1948 from public contributions after the country’s first prime minister,  Jawahar Lal Nehru, made an appeal to help displaced people from Pakistan. Now it is primarily used for provide immediate relief to families affected by natural disasters.

Or, for instance, tax-saving donations to non-profit organisations and government authorities promoting family planning will get a donation tax deduction of 100% of the total donation amount subject to 10% of adjusted gross income.

It may be advisable to consult with an accountant about your donation tax exemption before choosing the cause to support if the primary reason for contributing is for income tax donation exemption.

How to claim a deduction under Section 80G

a) Make a donation to an eligible charitable institution or trust that has been granted 80G certificate by the Income Tax Department.

b) Obtain a donation receipt from the institution or trust, which should include the name, address, PAN number, and registration details of the recipient.

c) Include the donation amount in the appropriate section of your income tax return (ITR) for the relevant financial year.

d) Provide proof of payment such as a cancelled cheque, bank statement, or receipt of electronic transfer.

e) Submit the ITR along with the donation receipt and proof of payment to the Income Tax Department.

Once your claim is processed, the amount of the donation will be deducted from your taxable income and you will receive a tax benefit accordingly. It’s important to keep all the required documents safe and secure for future reference.

Limitations and restrictions

While a donation is deductible under Section 80G, it is important to remember that there are certain limits and restrictions. For instance, political parties or candidates could try to raise funds online but any contributions made to them are not considered charitable and therefore not eligible for donation deduction. 

It’s also worth noting that income tax benefits are also dependent on the type of entity making the donation (i.e individual/HUF/company). The donation tax benefit also differs between resident and non-resident individuals. Therefore, consulting with a tax expert or CA before making a claim is highly recommended.

Also, for donors to be able to avail their income tax benefits, it is important that they have proper documentation, such as Certificates of Donation from the non-profit organisation, to claim the donation deduction on their income tax returns.

Maximising donation tax benefits

However, despite these limitations, tax-saving donations under Section 80G can be a powerful tool for both donors and non-profit organisations. 

For donors, it helps them to feel good about giving back to society while also having a positive impact on their own finances with donation tax exemption. 

For non-profit organisations, having an 80G certificate can help increase donations and funding as donors are more likely to donate to an NGO that has the certificate. More importantly, it can help to raise funds online – the preferred mode of donating these days – and increase transparency and accountability as the NGO is required to regularly submit financial documents and audited accounts to the Income Tax authorities.

To take advantage of tax-deductible donations under Section 80G, prospective donors should look for non-profit organisations that hold valid 80G certificates. They should also consult with a tax professional or visit the Income Tax Department’s website for more information on the percentage of donation tax deductions available and the documentation required to claim them. 

By understanding the benefits and limitations of tax-deductible donation under Section 80G, donors can make the most of their charitable contributions and also avail the income tax benefit on donation to charitable trusts.

Who can get an 80G certification?

An 80G certification can be obtained by any registered charitable trust, society, or non-governmental organisation (NGO) in India. To be eligible for 80G certification requirement, organisation must engage in charitable activities as defined by the Income Tax Act of 1961.

1. Separation of business and charity: In order to receive an 80G exemption certificate, your organisation must separate its business from its charitable component.

2. There will be no abuse: The donations made so far to the cause should not be misappropriated or used for any other purpose, even within the organisation. As a result, all such organisations must adhere to strict accounting principles in order to demonstrate that no funds have been misappropriated.

3. No religious activity: Any NGO or trust that preaches religion or works for a specific caste or creed is ineligible for 80G certification.

4. Accurate bookkeeping: As previously stated, organisations must keep accurate and up-to-date accounting books and financial transaction records as proof.

Tax benefits while donating on Give

Every donation made to Give can be used to avail of a deduction of up to 50% of the donated amount under section 80G of the Income Tax Act. Explore fundraisers to donate to and make an impact here:

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