Tax Talk: Not all donations to charity, political parties qualify for tax deduction

By: | Published: August 4, 2015 12:04 AM

Taxpayers who have made donations to charitable institutions, or even political parties, can claim deduction while filing...

Taxpayers who have made donations to charitable institutions, or even political parties, can claim deduction while filing their income-tax returns by August 31. For salaried employees, if the deduction is not not computed in the Form 16, then the deduction can be processed at the time of filing of the returns.

For individuals to claim deduction under Section 80G, a receipt issued by the trust receiving the donation is a must. The receipt must have details of name, address and Permanent Account Number (PAN) of the trust, the name of the donor and the amount donated. The registration number of the trust, which is issued by the Income-Tax Department under Section 80G, is a must for claiming tax benefit by the individual or the company. However, the taxpayer must note that all donations are not eligible for tax benefits.

Under Section 80G of the Income-Tax Act, 1961, the deduction is allowed at the rate of 50% of the amount of donations made except in the case of those made to certain funds and institutions formed for a social purpose of national importance, where 100% deduction is allowed.

These are Central government’s National Defence Fund, the Prime Minister’s National Relief Fund, the Prime Minister’s Armenia Earthquake Relief Fund, the Africa (Public Contributions — India) Fund, the National Children’s Fund and the National Foundation for Communal Harmony Fund.

From April 1, 2015, the government has added Swachh Bharat Kosh to the donation list to improve sanitation facilities and rejuvenation of river Ganga. Contributions to this will be eligible for 100% deductions. The government periodically releases a list of approved charitable institutions and funds that are eligible to receive donations that qualify for deduction.

The list includes trusts, societies and corporate bodies incorporated under Section 25 of the Companies Act, 1956, as non-profit companies. The income-tax department issues the registration number to the trust or the non-profit body for a limited period of two years, which could be renewed. The registration number has to be printed on the receipt and the validity period of the registration must also be mentioned on it. If this is not done, the taxpayer cannot claim any tax deduction on the donation made.

There are certain restrictions to deduction to individuals, companies or any specific category of taxpayer. Donations made to foreign trusts by an individuals or companies do not qualify for deduction under this Section. Similarly, even for donation made to political parties, including paying for brochures, souvenirs or pamphlets brought out by such parties, are not eligible for any tax deduction. The taxpayer will have to pay the amount of donation either through cheque, demand draft or internet banking — cash payments are not eligible for any rebate. Also, donations in kind are not entitled to any tax benefit.

For donations which are eligible for 100% deduction, the taxpayer must take Form 58 from the trust.

The form contains details of project cost for which the donation is received, amount authorised under this project and the actual amount collected. The taxpayer must note that without Form 58, the claim for 100% deduction will be rejected by the income-tax department.

Though there is no upper limit on the amount of donation, in some cases there is a cap on the eligible amount, which is a maximum of 10% of the gross total income of the individual taxpayer. Also, deduction under Section 80G cannot exceed your taxable income.

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