TAX EXEMPTION ON DONATIONS UNDER SECTION 80G

Section 80G of the Indian Income Tax Act provides tax deductions for donations made to eligible charitable institutions and funds. This section aims to encourage charitable giving by offering tax benefits to taxpayers who contribute to such organizations.

Here's how Section 80G works:

Individuals, companies, and HUFs can claim deductions for donations to eligible organizations, excluding foreign institutions and political parties. Deduction limits vary: some donations qualify for 100% or 50% deduction with no limit, while others are subject to limits based on 10% of Adjusted Gross Total Income (AGTI), such as donations for family planning promotion or contributions to the Indian Olympic Association.

Cash donations are eligible up to Rs. 2,000; higher amounts must be paid via cheque, demand draft, or digital methods. Donations in kind are not eligible. Documentation requirements include a donation receipt and, for 100% deductions, Form 58A is mandatory. The deduction is claimed in 'Schedule 80G' when filing the ITR. This deduction is only available under the old tax regime. The calculation depends on the donation category and whether it has a limit based on AGTI.

Understanding Section 80G allows taxpayers to reduce their tax liability while supporting charitable causes in Bharat.

What is Tax Exemption?

The reduction or removal of a liability to make a mandatory payment that is otherwise imposed by the ruling power on a property, individual, income, and so on, is known as tax exemption. Having a tax-exempt status may also provide relief from other taxes, offer reduced rates, or tax only on a portion of certain items. Exemption of tax for donations to charitable trusts and NPOs, from property and income taxes for veterans, cross-border scenarios, and so on, are some examples of tax exemption. An important thing that organisations need to keep in mind is that registrations are granted under Section 12A of the Income Tax Act. However, that doesn’t give direct approval for an 80G deduction. This is because Section 80G tax savings by donations apply only to charitable trusts, NPOs, and similar institutions. It doesn’t apply to religious trusts or institutions.

Exemptions on Donation Under Section 80G of the Income Tax Act

Section 80G Income Tax Act of 1961 is a little different, as it provides tax exemption to charity donors as well. Donations to an NPO under 80G are treated as deductions while calculating the total income of the donor. The recipient of the charity donation gives a receipt of the donation to the donor based on which they get the entitled deduction, provided the NPO or charitable trust is approved under Section 80G. In addition to this, tax exemptions on charity are also applicable, provided the charity organisation is established in India and is operating for charitable purposes in the country.

When you contribute towards the causes and initiatives supported by Indian Socio Income and Grievance Helping Trust -INSIGHT, you are eligible for a certain tax exemption on your donation to our NPO. This income tax exemption can be claimed only if an NGO registered and validated with the Income Tax Department provides donors with the necessary 80G receipts and 80G certificates that are required by the government.

An important thing that you should keep in mind here is that the tax exemption under the Income Tax Act for charitable organisations, NPOs, and other non-profit organisations is governed by Section 12A. This however does not entail approval for deductions for donors or offer tax benefits on donations, the deductions for whom are listed under Section 80G. Deductions under Section 80G of the Income Tax Act also limit donating to religious trusts or institutions, which are not covered by an income tax exemption.

More about the Tax Exemption on a Donation Made to an NPO

Though the government allows the claiming of deductions on donations to charity organisations and relief funds, the tax exemption for NPO donations may not be applicable in all cases. People who are eligible to pay tax are automatically eligible for a tax benefit on donations under section 80G. Here, the taxpayer can be an individual, firm, company, Hindi Undivided Family, company, or anyone else. However, you should also be an Indian or a Non-Resident Indian (NRI) holding an Indian passport, and you should have a taxable income in India to be eligible for the covered tax benefit on donations.

Further, to claim an exemption under the Income Tax Act, a donor must satisfy the following criteria as well:

The donation should have been made to an approved, registered, and validated NPO , as stated under Section 12A of the Income Tax Act.
The 80G receipt for the donation should be available.
In some cases, the donor may also be required to present a copy of the 80G certificate download of the NPO or organization to which they made the donation.
The Income Tax Act also limits donating cash to Rs 2000. So, if you wish you wish to claim tax benefits on NPO donations that exceed an amount of Rs 2000, the donation cannot be made in cash. Some other mode of payment has to be used.

There are also no NPO tax benefits donations that are made in kind.

Eligibility for Claiming an Income Tax Exemption Under Section 80G

All taxpayers in India, or those having a taxable income in India, are eligible to claim tax savings by donations made to charity organizations as deductions under income tax section 80G, subject to the limits set down by the government of India. This includes individuals, Hindu Undivided Families, and companies. NRIs, who hold an Indian passport, are also entitled to the benefits of donations to NPOs under 80G, provided their donations are made to eligible institutions or funds.

Only donations made to valid, registered charities qualify for suitable deductions or for a tax exemption. The NPO also cannot be a religious trust or fund. This means that the trust or charity to which you are making a donation should be registered under Section 12A, after which they are considered to be qualified for an 80G certificate download. Individuals must always check the credentials of a charity organisation before they make a donation to it.

Documentation Required for Claiming a Section 80G Deduction

If you wish to claim a Section 80G deduction, you will be required to submit the following documents to support the claim:

Receipts: It is mandatory for you to have a duly stamped receipt that has been issued by the charity organization that has received your donation. The receipt should clearly mention important details like the name, address, and PAN of the trust, the amount that has been donated, as well as the name of the donor.
Form 58: This is an essential document for donations that are eligible for a 100% deduction.
The Registration Number of the Trust: Every eligible trust is provided with a registration number by the Income Tax Department, and it is important for the donor to ensure that this number is mentioned on the receipt of their donation as well. Additionally, the registration number should have been valid on the date on which the donation was made.