18 May, 2016

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Deduction under section 80G - Detailed discussion

Deduction under section 80G - Detailed discussion

Section 80G is another deduction under chapter VII – A , which is quite not understood.As many tax savings come and go , this one has retained its place forever.This article will go through Section 80G, with respect to following.
  • What it covers
  • Categories of institutions or trusts to which donations are made
  • Amount of deduction
  • Method of calculation

What is Section 80G about?
Section 80G covers the deduction allowed with respect to donations to specific charities or institutions or Funds as specified under the Act.

Who is eligible for the deduction?
Any assessee can claim the deduction under section 80G.

Categories and method of calculation of deduction under section 80G :
  1. Donations made to Trusts or Funds set up by government.

The assessee will be able to claim deduction under section 80G for such donations @ 100%.The Act enlists a few institutions set up by the government under this category.For e.g. The National Defense Fund , The Prime Minister Natural Relief Fund etc.Please refer to entire list on Income Tax Website.
For e.g. – if Mr. X donates Rs.10000 to The National Defense Fund, then he is entitled to deduction of Rs.10000 from his GTI (Gross Total Income).

  1. Donations made to Trusts or Funds set up by government – 50% allowed :

Following funds entitle the donor to claim 50% deduction of amount donated.
  • Jawaharlal Nehru Memorial Fund.
  • Prime Minister Drought Relief Fund.
  • Indira Gandhi  Memorial trust.
  • Rajiv Gandhi Foundation.

  1. Donations to private Trusts or institutes:

The assessee can’t claim the total amount donated as deduction for this category.The trusts or institutes which are registered under section 12A are allowed to issue Tax Exemption Certificate.However, any person is eligible to claim only part of qualifying amount for such donations.

There are two categories within the same -

  • Donations allowed at 100% of deduction subject to 10% of adjusted GTI
These will cover following donations
  1. To government or local authority or any association for Family planning promotion.
  2. To Indian Olympic Association or any association notified for development of infrastructure or sponsorship of sports and games in India.

  • Donations allowed @ 50% of deduction subject to 10% of adjusted GTI

Any other donations which don’t form part of above said categories and subcategory , will be covered herein.For e.g.donation for repairs or renovation of religious places like temple , mosque etc., or any association promoting interest of minority interests etc.

Adjusted GTI would be calculated as follows.
Consider GTI (income under all the heads).
Reduce the following from this GTI.
  • Deductions under chapter VIIA (excluding 80G).
  • Exempt income.
  • Long term Capital Gain.
  • Income of Non Residents and Foreign companies (as mentioned under section 115A, 115AB, 115AC, 115AD, 115D).

How to calculate deduction for category C?
Where any person donates to associations or institutions or trusts as mentioned in category C above, the deduction under section 80G will be calculated as below.
  1. The method to calculate such qualifying amount is as follows.
Lower of following two will be qualifying amount.
  • Actual amount of deduction  or
  • 10% of adjusted GTI

  1. Permissible Deduction
50% of qualifying amount is allowed as deduction under section 80G.

  1. Upper ceiling
Finally amount of deduction as calculated above should not exceed taxable income.For e.g. if Mr. Y donates 3 lakhs and has taxable income of 2lakhs , then difference of 1lakh will be disallowed.

  1. Donations to Approved Research Institutes

Approved Research institutes claim deduction for research expenditure under section 35CCA and 35AC.They are required to seek approval from government for this reason.The salaried employees can donate to such organizations and claim deduction under section 80GGA.The amount claimed as deduction would be actual amount donated to research organizations.

Points to remember while claiming the deduction.
  • Attachment to Return of Income is required in the form of Tax Exemption Certificate or receipt of donation.This receipt should ideally have the Registration number as issued by Income Tax Department under section 80G.
  • The receipt for donations shall declare the tax deduction eligibility of such donation.It should say that donations made to trust or association are eligible for deduction under section 80G.
  • Double check to ensure that the trust or institute to which the amount is donated , has a valid registration.This can be checked from the date of registration.
  • The requirement of renewal of registration is removed since 1-10-2009.Hence if a registration is valid on 1-10-2009 , then the person can donate and claim the same without any doubt.
  • Donations in kind are not considered for deduction under section 80G.Hence if any person donates food items or clothes , then it is inadmissble for claiming the deduction under section 80G.

Deduction under Secton 80G is to be claimed by the assessee in return of income by attaching proof of the same.However some of the companies allow the deduction and deduct TDS (Tax Deducted at Source) after considering section 80G deduction.In all, this is one way to help others and save tax at the same time.

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