What is Section 80G and How it Helps You Save Tax?

Do you want to save tax while making a positive difference in the world? If yes, you should know about section 80G of the Income Tax Act, 1961. This section allows you to claim deductions for your donations to various charitable institutions approved by the government. By donating to these institutions, you can support their noble causes, reduce your taxable income, and pay less tax.

Sounds good, right? But before you start writing cheques or transferring money online, you must understand some crucial aspects of section 80G deduction. In this article, we will tell you everything you need to know about 80G and how to reduce your tax liability using this fantastic tool.

What is 80G?

Definition of Section 80G in the Income Tax Act

Section 80G of the Income Tax Act allows taxpayers to claim deductions on donations made to specified relief funds and charitable institutions. The main purpose of this section is to encourage philanthropy by offering financial benefits to donors.

Purpose of 80G: Encouraging Donations for Charitable Causes

The government provides tax incentives to encourage individuals and businesses to contribute to organizations working towards education, healthcare, disaster relief, and other welfare activities.

Eligibility for 80G Deduction

1. Who Can Claim 80G Tax Benefit?

The following entities are eligible to claim deduction under Section 80G:

• Individuals
• Hindu Undivided Families (HUFs)
• Companies (Proprietorship/Partnership/LLPs)
• Firms
• Non-Resident Indians (NRIs)

2. Types of Donations Eligible Under 80G: Why Section 80G is a Win-Win for Taxpayers and Charitable Causes

Only donations made to government-approved charitable institutions and funds qualify for Section 80G deductions. The eligibility depends on the institution’s registration under the Income Tax Act.

3. Exclusions: Donations Not Qualifying for 80G Deduction

Certain donations do not qualify for tax deductions under income tax Section 80G, such as:

• Contributions made to foreign charities
• Donations in kind (clothes, food, medicines, etc.)
• Political party donations

Tax Saving Under 80G: How it Works

1. Deduction Limits: 100% vs 50% Based on the Organization

Depending on the nature of the recipient organization, donations qualify for either a 100% or 50% deduction. Some funds offer full deductions without limits, while others have a restriction of 10% of adjusted gross total income.

2. Conditions for Full Deduction Eligibility

To qualify for 100% deduction, donations must be made to specific government relief funds and recognized institutions. A list of eligible funds is available on the Income Tax Department’s website.

3. How to Calculate 80G Deduction Amount

The deduction amount is calculated as follows:

• Determine the category of the recipient organization
• Apply the deduction percentage (50% or 100%)

Tax Saving Under 80G: How it Works

1. Deduction Limits: 100% vs 50% Based on the Organization

Depending on the nature of the recipient organization, donations qualify for either a 100% or 50% deduction. Some funds offer full deductions without limits, while others have a restriction of 10% of adjusted gross total income.

2. Conditions for Full Deduction Eligibility

To qualify for 100% deduction, donations must be made to specific government relief funds and recognized institutions. A list of eligible funds is available on the Income Tax Department’s website.

3. How to Calculate 80G Deduction Amount

The deduction amount is calculated as follows:

• Determine the category of the recipient organization
• Apply the deduction percentage (50% or 100%)
• Check if the 10% adjusted gross total income limit applies

How to Claim 80G Deduction

1. Required Documentation for Claiming 80G Deductions

To successfully claim deduction under Section 80G, ensure you have:

• Donation receipt (must contain donor’s name, amount, and institution details)
• PAN of the charitable organization
• Registration certificate of the institution

2. Steps to File 80G Claims While Filing Income Tax Returns

1. Verify if the institution is eligible for 80G deduction.
2. Collect receipts and other required documents.
3. Report the donation details under Section 80G while filing ITR.
4. Attach supporting documents if required.

3. Common Mistakes to Avoid When Claiming Tax Benefits

• Donating to non-registered institutions
• Not obtaining or misplacing donation receipts
• Misreporting deduction limits in tax returns

Advantages of Donating Under 80G

1. Financial Benefits Through Tax Savings
   • Reduces taxable income, resulting in lower tax liabilities.
2. Contributing to Social and Environmental Causes
   • Supports initiatives in healthcare, education, disaster relief, and more.
3. Gaining Recognition for Philanthropy
   • Corporate and individual donors gain goodwill by contributing to national development.

Common Challenges in Claiming 80G Deductions

1. Incomplete or Incorrect Documentation
   • Ensure the receipt includes PAN details and the organization’s registration number.
2. Donating to Non-Eligible Organizations
   • Always verify if the institution qualifies under Section 80G of the Income Tax Act.
3. Misunderstanding Deduction Limits and Conditions

Be aware of which donations qualify for 100% deduction versus 50% deduction.

How to Claim Tax Exemption Under 80G?

Before being generous, learn the ins and outs of the 80 tax exemptions and how to get the most out of them.

Who Can Claim 80G tax exemption?

If you fall into one of the following categories, you are eligible to claim an 80G tax exemption on your donations:

• Individual
• Company (Proprietorship/Partnership/LLPs)
• NRI
• Firm
• Hindu Undivided Family (HUF)
• Any other person

Payment Modes for Donations under 80G

Acceptable modes of payment include-

1. Stamped Cash receipt (for amounts up to Rs. 2000/-)
2. Cheque
3. Draft

Remember that other payment modes, such as food, clothing, medicines etc., are not eligible for an 80G tax deduction.

Documents Required to Claim 80G Deduction

To claim an 80G deduction, you need to have the following documents:

1. A valid receipt from the trust/charitable institution you donated to. The receipt should mention the name, address, PAN, registration number, amount and mode of donation of the institution. It should also have the seal and signature of the authorized person of the institution.

2. A copy of the registration certificate of the institution that shows its eligibility under section 80G. You can also check the website of the Income Tax Department for the list of eligible institutions.

3. proof of your identity and income, such as a PAN card, Aadhaar card, salary slip, bank statement etc.

4. You must necessarily submit form 58 received from donee along with your ITR if you wish to claim a 100% tax rebate on your donation. Otherwise, your contribution will be deemed eligible for a 50% deduction only.

Scope of deductions under Section 80G

1. Donations made with taxable income are only eligible for a rebate. Any contributions made with non-taxable income will not be eligible for the 80G deduction.

2. Any contribution made towards the following funds will not qualify for 80G deductions from the assessment year 2024-25 and subsequent assessment years. –

• National Defense Fund
• Prime Minister’s National Relief Fund
• The National Foundation for Communal Harmony
• National/State Blood Transfusion Council

3. Only donations made for charity purposes are considered for an 80 G deduction. No donations made for commercial or personal benefits are covered.

4. Donations made to political parties or foreign institutions are eligible for consideration of tax rebates.

Challenges of Section 80G

Some of the challenges of Section 80G you should be aware of –

• Keeping track of all the donations and receipts throughout the year
• Verifying the eligibility and authenticity of the charitable institutions before making a donation
• Ensuring that the donation is made in cash or cheque only, as other modes of payment are not eligible for deduction
• Checking the category and limit of the deduction for each institution, as different institutions have different deduction percentages and limits
• Providing the details of the donations in the ITR form and attaching the receipts along with it

Types of deductions under 80G tax exemption

100% tax-deductible donations with no qualifying limit

Donations within this category include-

National Defence Fund set up by the Central Government (only up to FY 22-23)

Prime Minister’s National Relief Fund  (only up to FY 22-23)

National Foundation for Communal Harmony  (only up to FY 22-23)

Approved University or educational institution

Zila Saksharta Samiti

State-created fund for poor populations’ medical expenses.

National Illness Assistance Fund

National or State Blood Transfusion Council  (only up to FY 22-23)

National Sports Fund

National Cultural Fund

Fund for Technology Development and Application

National Children’s Fund

CM’s Relief Fund

Lieutenant Governor’s Relief Fund

Andhra Pradesh Chief Minister’s Cyclone Relief Fund, Army Central Welfare Fund, Indian Naval Benevolent Fund, Air Force Central Welfare Fund, and the Maharashtra Chief Minister’s Relief Fund

Chief Minister’s Earthquake Relief Fund, Maharashtra

Contribution towards relief to Gujarat earthquake victims

Swachh Bharat Kosh

Clean Ganga Fund

Contribution to the National Fund for Drug Addiction Control

50% tax-deductible donations with no qualifying limit

Donations within this category include-

Jawaharlal Nehru Memorial Fund

Prime Minister’s Drought Relief Fund

National Children’s Fund (only up to FY 22-23)

Indira Gandhi Memorial Trust (only up to FY 22-23)

Rajiv Gandhi Foundation (only up to FY 22-23)

3.100% tax-deductible with a limit of 10% of the adjusted gross total income

Donations within this category include-

Donations to the government /any approved local authority/ institution/association to promote family planning.

Corporate donations to the Indian Olympic Association/ other notified associations for the development of infrastructure or sponsorship for sports and games in India.

Donations made in the previous year for renovation or repair of any temple, mosque, gurudwara, church/or other well-known place of public worship.

50% tax-deductible with a limit of 10% of the adjusted gross total income

Donations within this category include-

Donations to any local authority or government for any charitable purpose except family planning.

Donations to any authority in India to deal with and meet the need for housing accommodation or development or both.

Donations to any corporation referred to in section 10(26BB) for promoting the interests of the minority community.

Donations to any temple, mosque, gurudwara, church, or other places of worship for repairs or renovation.

What is Adjusted Gross Total Income?

Adjusted Gross Total Income is the amount of income that is left after deducting certain items, as detailed below from the Gross Total Income from all heads. Permissible deductions include-

• Amount deductible under Sections 80C to 80U excluding 80G
• Non-taxable income
• Long-term capital gains
• Short-term capital gains
• Income relating to NRIs and foreign companies (referred to in Sections 115A, 115AB, 115AC, 115AD and 115D)

Key Takeaways

Section 80G of the Income Tax Act, 1961 is a beneficial provision that allows you to claim deductions for your donations to eligible charitable institutions. By donating to these institutions, you can support various social and environmental causes and save tax by reducing your taxable income.

However, to claim this deduction, you need to follow certain rules and conditions, such as providing the details of your donations in your ITR form, having a valid receipt from the institution, and making the donation in cash or cheque only.

You also need to check the category and eligibility of the institution before donating, as different institutions have different deduction percentages and limits. By following these guidelines, you can make the most of the section 80G deduction and enjoy the dual benefits of charity and tax saving.

Be generous and smart with your tax planning.

FAQs on Section 80G Deductions