The government gives tax benefits on donations under Section 80G of the Income Tax Act, 1961. However, not all donations are eligible for tax benefits. There are certain restrictions to the deduction allowed to individuals, companies or any specific category of taxpayers.
Donation made to foreign trusts by an individual or company does not qualify for deduction under this Section. Similarly, even for a donation made to political parties, including paying for brochures, souvenirs or pamphlets brought out by such parties, are not eligible for tax deduction.
For individuals to claim deduction under Section 80G, a receipt issued by the trust receiving the donation is a must. The receipt must have details of name, address and Permanent Account Number (PAN) of the trust, the name of the donor and the amount donated. The registration number of the trust, which is issued by the income-tax department under Section 80G is a must for claiming tax benefit.
The government periodically releases a list of approved charitable institutions and funds that are 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. The income-tax department issues the registration number to the trust or the non-profit body for a limited period of two years and this is renewed. The registration number has to be printed on the receipt and, also, the validity period of the registration must be mentioned in the receipt. If this is not done, the taxpayer cannot claim any tax deduction on the donation made.
For donations that are eligible for 100% deduction, the taxpayer must take Form 58 from the trust. The form contains details of project cost for which the donation is received, amount authorised under this project and the actual amount collected. Without Form 58, the claim for 100% deduction will be rejected by the income-tax department. Only donations in cheque or in cash below R10,000 are eligible for tax deduction. Donations in kind like clothes, blankets, food etc are not entitled to any tax benefits. Though there is no upper limit on the amount of donation, in some cases, there is a cap on the eligible amount, which is a maximum of 10% of the gross total income of the individual taxpayer.
Also, deduction under Section 80G cannot exceed your taxable income. A taxpayer can claim 100% deduction without any qualifying limit if the donation is made to the Prime Minister’s National Relief Fund. One can even avail 100% deduction for donations made to an approved institution for promoting family planning. In case of donations to Indira Gandhi Memorial Trust, an individual can claim 50% deduction without any qualifying limit.
Employees can claim deduction under Section 80G, provided a certificate from the employer is received in which the latter states the fact that the contribution was made out from the former’s salary account. Even NRI’s can claim tax benefits against a donation, provided it is made to eligible institutions.