Donations: How to give your cake and eat it too

Published: November 4, 2014 4:57:46 PM

Donations to some institutions qualify for tax rebate under the the Income-Tax Act, 1961...

Donations to some institutions qualify for tax rebate under the the Income-Tax Act, 1961. Such benefits can be availed of by an individual, a company, an Association of Persons (AoP) or even an NRI. Here we take a look at some donations that qualify for rebate.

Donation to certain funds, charitable institutions: First of all, you need to ensure that you have donated to an appropriate charitable institution, that is, one approved under Section 80G of the Act. Typically, such institutions display their 80G-status prominently on their websites.

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 the gross taxable income before deducting donation) of the qualifying amount of the donation, depending on the fund/institution to which donation is made.

However, 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.

Donation for scientific research or rural development: Donations to registered/approved institutions catering to scientific research and rural development are eligible for deduction under Section 80GGA. These mainly include approved associations/institutions having object of undertaking scientific research, including research in social science or statistical research or eradication of poverty, rural development, etc. Note that this deduction is not available to any person having income from business or profession. Also, no deduction is allowed under this Section in respect of donation of any amount exceeding R10,000 unless such a sum is paid by any mode other than cash.

If the approval granted to any institution(s) prescribed therein, stands withdrawn subsequent to the donation made, the person making donation will not be debarred from claiming tax benefit under Section 80GGA.

Contribution to political parties or electoral trusts: Making contribution to a political party or electoral trust can also reduce your tax liability under the provisions of Section 80GGB or Section 80GGC. Whereas Section 80GGB gives tax benefit only to an Indian company, Section 80GGC is applicable to any person (including a company), except local authority and every artificial judicial person wholly or partly funded by the government.

Further, such a political party or trust must be registered under Representation of the People Act, 1951. There is no specific mode of making such contribution. However, cash contribution made on or after April 1, 2014, would not qualify for deduction under Sections 80GGB and 80GGC of the Act. It is relevant to note that donations in kind are not eligible for deductions.

The receipt must include details like name and address of the trust, name of the donor, amount donated mentioned in words and figures, registration number of the trust as given by the income-tax department under Section 80G, along with its validity period.

By Rakesh Nangia

The writer is managing partner, Nangia & Co. With inputs from Neha Malhotra, Nangia & Co.

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