With Diwali and the Navratras round the corner, many of us would be contemplating donating to temples and institutions this festive season. Some may find it surprising that donations are eligible for tax benefits, subject to certain restrictions.
Tax benefits on donations are covered under Section 80G of the Income-Tax Act, 1961. According to this section, donations made to charitable trusts, societies, etc, which are recognised by the tax department, are entitled for a deduction. Further, depending on the purpose of donation, the quantum of deduction could be 100% or 50% of the donation amount.Donations eligible for 100% deduction are Prime Minister?s National Relief Fund, National Defence fund, etc. Donation eligible for 50% deduction are Prime Minister?s Drought Relief Fund, National Children?s Fund, donation to charitable trusts and societies notified by the tax department.
The total amount of deduction is further restricted to 10% of the gross annual income of the tax-payer. It would be advisable to check the eligibility criteria of the organisation to which you are donating to determine the amount of deduction you would be entitled to.
Individuals are eligible to take the benefit of tax deduction only if the institution is approved under the Act. It is a win-win situation for the individual as well as the institution if the approval is in place. Apart from the charities approved under Section 80G, donation to scientific research, rural development and political parties are also covered by separate provisions of the Act.
As a practice, employers are not allowed to consider the amount of donation while computing tax deduction at source from salary payments. However, in certain cases, contributions made towards specified funds can be taken into consideration and adjusted in the monthly tax liability of the employee. Funds which qualify include Prime Minister?s National Relief Fund, Chief Minister?s Relief Fund, etc.
Individuals can claim deduction in the tax return. All funds do not fall in the specified category, where the employer can provide the tax benefit while computing the balance tax liability. In a scenario where the fund is approved by the tax department, but not part of the specified funds, an individual can claim the benefit at the time of filing his tax return.
Earlier, receipts were required to be attached with the tax return for claiming deduction. The tax returns can now be filed without any supporting documents and, therefore, copies of receipts need not be attached. However, it is important
that the receipts are kept in safe custody so that they can be provided at a later stage to the tax authorities, if required.
n The writer is director, tax and regulatory services, KPMG