Tax deductions available on donations for flood victims

Written by VineetAgarwal | Vineet Agarwal | Updated: Jun 25 2013, 11:07am hrs
As floods ravage Kedarnath and most parts of Uttarakhand, the armed forces have come forward to help the locals and tourists.

Many residents have also taken it upon themselves to help the people in distress. The Income-Tax Act, 1961, ensures that you get tax benefits on donations made. Here is a look at some tax provisions as you may also be making some donations to the victims.

Donations and tax deductions

Under the IT Act, donations made towards recognised charitable funds and institutions are entitled to a tax deduction. The IT Act provides a specific list of approved institutions and funds where a deduction of 100% or 50% of the amount donated can be claimed. Contributions to funds like Prime Minister's National Relief Fund, National Defence Fund and Chief Minister's Earthquake Relief Fund are eligible for a 100% deduction.

Contributions to certain other approved funds like Jawaharlal Nehru Memorial Fund, Prime Minister's Drought Relief Fund and National Children's Fund provide for a 50% deduction of the amount donated. In addition, there are number of institutions that have been approved by the government, and donations made to such institutions are also eligible for a deduction of 50% of the amount donated. In some cases, the rate of deduction is restricted to 10% of the adjusted gross total income.

Donation in kind not eligible for tax benefits

People donate clothes, food, books, etc, to these people. It must be noted that donations in kind are not eligible for deduction from taxable income. However, one should not forget that these donations also count a lot in helping the poor.

Keeping the donation receipts

Misplacing the donation receipts is a common mistake. Though at time of filing the tax return, no document is required to be attached, it is mandatory to quote some details, which include PAN of the institution towards which donation is made, amount of donation and address of the institution. It is still advisable to keep the receipts as it can help if there is any tax assessment.

Employers can provide tax benefit

Over the years, TDS circulars were issued expressly stating the intention of the government to allow deduction by the employer only if donations were made to certain specific funds, through the employer.

However, the recent TDS circular casts no such restriction. This relaxation is a welcome step as employees can provide the donation receipts to the employer. They will no longer be required to go through the hassles of claiming deduction in their tax return and obtaining a refund later on. The only restriction imposed is the circular is that donations of R10,000 or more in cash will not be eligible for any tax deduction.

The writer is a director with KPMG. Views expressed are personal