There are many schemes of the government which make it possible to avail income tax benefits and donations to religious and charitable institutions stand among one of them.
There are provisions in the Income-Tax Act, 1961 (Act) which provide for deduction of donations from taxable income of any person including individuals, companies, firms, Associations of Persons (AOP) or even NRIs. It would be worthwhile to note some of the donations and their tax benefits.
Donation to religious/charitable institutions
Ensure that you have donated to appropriate charitable/religious institution, that is, the institution should be approved under section 80G of the Act. Typically, such institutions display their 80G-status prominently on their websites as well as their receipts. It needs to be ensured that the registration certificate issued to the institution or approved trust has not been revoked by the government. It is pertinent to note that if the registration granted to any institution(s) prescribed therein stands withdrawn subsequent to the donation made, the person making donation shall not be debarred from claiming tax benefit under section 80G of the Act.
The Prime Minister’s National Relief Fund, approved universities/education institutions, any notified temple, mosque, etc., are some of the institutions/ trusts prescribed under section 80G. The amount of deduction will be either 100% or 50% (which could be further restricted to 10% of gross taxable income before deducting donation) of the qualifying amount of the donation, depending on the fund/institution to which donation is made.
However, donation in kind, such as donation of clothes, blankets, food, medicines and other things of utility are not eligible for claiming tax benefit under section 80G of the Act. Also, no deduction can be claimed in respect of donation of an amount exceeding R10,000 unless such sum is paid by any mode other than cash.
Documentation is important
In order to avail tax benefit, the documents evidencing the donation made should be carefully maintained. Further, in case of a scrutiny assessment by the tax department, re-production of such documents shall be vital to substantiate the claim of deduction from total income. The receipt must include the following details: Name and address of the trust, name of the donor, amount donated mentioned in both words and figures, registration number of the trust as given by the income tax department under section 80G, along with its validity period.
Making a donation for charity, social or philanthropic purposes, or towards a National Relief Fund shall fulfil your desire to be a socially responsible citizen and at the same time reduce your tax outgo.
The writer is partner, Nangia & Co.