Spreading Diwali cheer? You can get tax benefits
With Diwali around the corner, we are reminded that donating and giving can be an incredibly satisfying experience. However, very few Indians donate money for a cause as part of their gifting plans.
In fact, data reveals that less than 2% of the people who file income tax returns donate to charities. Did you know that donations can help you save tax, by applying for benefits under section 80G of the Income Tax Act? Here’s how it works:
The first step is to identify a potential donee. Some of the causes may be close to your heart or you may find a special connect to their mission. There are plenty of non-governmental organisations (NGOs) and institutions doing charitable work.
There’s the Prime Ministerial National Relief Fund, which provides relief to those affected by natural calamities. In the wake of Kerala floods, you might have considered the Kerala Chief Minister’s Fund to donate your money. Those passionate about the cleaning of Ganga may opt to contribute to the Clean Ganga Fund. I know of a family that lost a member to drug abuse and chose to make an annual donation to the National Fund for Control of Drug Abuse.
Tax deduction towards all the causes listed above is 100% of the amount contributed. But this is not true in all cases.
Several NGOs are registered with authorities that take donations, but the contributions are not eligible for 100% tax donation. These are often restricted to 50% of the amount contributed.
While the maximum benefit is not allowed to exceed 10% of the adjusted total income, you need not worry about exceeding the limit or calculating the adjusted total income. Most people who file income tax online code it in their softwares, so you can comply with this condition.
Therefore, after selecting your donee of choice, the next step would be to figure out if you are eligible to claim tax benefit on the entire amount contributed by you. These donees and their eligibility are listed under section 80G of the Income Tax act. Choose wisely.
Once you have selected the cause and know how much deduction you are allowed to claim, you must comply with some other requirements of section 80G. One such requirement is that the deduction can only be claimed when the contribution has been made through a cheque or a draft. Maximum amount for cash donations is ₹2,000.
Another such rider on donations is that contributions in kind, such as food items, clothes and medicines do not qualify for deduction under section 80G.
Before you go ahead and write that cheque, make sure you have the following information: name, permanent account number and address of the donee. These details must be reported while filing your income tax return. Also, remember to collect a receipt which clearly states the amount contributed by you, as well as the mode and details of payment. Keep this receipt safely with you.
A donation may be made by you as an individual, or as a firm. Non-Resident Indians (NRIs) can also make a donation and claim tax deduction under section 80G.
For some of us, this may be an excellent way to celebrate the festival of lights, by bringing happiness and cheer to those who need it.