Mukesh Patel.in
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TAX CONCESSIONS FOR DONATIONS!

Contributions & Donations to approved Charities & Research Institutions qualify for deductions from 50% to 175% !

Section 80G of the Income-tax Act provides for deduction out of gross total income in respect of donations to approved Funds and Charitable Institutions. The benefit of this deduction and consequential tax saving is available to any taxpayer viz. individual, HUF, company, firm, etc., whether resident or non-resident.

CALCULATING THE AMOUNT OF DEDUCTION

The following three steps should be kept in mind for calculating the amount of admissible deduction in respect of the donation made under Section 80G:

  • Step-1: For the purpose of deduction, donation must have been made to any Fund or Institution which is approved for the purpose of Section 80G. It needs to be borne in mind that donation should be either by cash or cheque or draft and donation made in kind is not eligible for deduction. The donor must ascertain that the recipient of the donation is having valid 80G approval.
                In case the donor wishes to donate any specific article, it would be advisable to give the appropriate amount to the Institution and direct it to acquire the article out of such amount. The aggregate of the donations made during the year is referred to as the ‘gross qualifying amount.’

  • Step-2: The second step is to determine the ‘net qualifying amount,’ which is limited to 10% of the ‘adjusted gross total income’ of the taxpayer. ‘Adjusted gross total income’ for this purpose is the gross total income, as reduced by deductions under Sections 80C to 80U (excluding Section 80G), any income on which Income-tax is not payable, long term or short term capital gains taxable at flat rates under Section 112 or Section 111A and special incomes of non-residents liable to tax under Sections 115A to 115D. However, the aforesaid ceiling does not apply in respect of donations made to certain specified Funds, such as National Defence Fund, Prime Minister’s National Relief Fund, Central Welfare Fund of the Army, Air Force and Navy, Chief Minister’s Relief Fund, etc.

  • Step-3: The third step is to actually work out the deduction on the basis of the net qualifying amount. The general rate of deduction under Section 80G in respect of donation made to normal Funds and Institutions is 50% of the net qualifying amount. However, in case of donations made to certain specified Funds such as National Defence Fund, Prime Minister’s National Relief Fund, Chief Minister’s Relief Fund, Central Welfare Fund of the Army, Air Force and Navy, etc., special deduction @ 100% of the net qualifying amount is available.

The working of the deduction under Section 80G as explained in the above steps can be more clearly appreciated from the illustration given hereunder:

Illustration: Gross total income of Mr. D is Rs.3,50,000, which includes Long Term Capital Gain of Rs.50,000 and income deductible under Section 80D of Rs.10,000. He has given donation of Rs.15,000 to the Chief Minister’s Relief Fund, donation of Rs.25,000 to Senior Citizen’s Home Charity Trust, Rs.10,000 to Care Foundation and Rs.3,000 to a private temple. In this case, the gross qualifying amount would be Rs.50,000 (Rs.15,000 + Rs.25,000 + Rs.10,000) representing donations to approved Fund & Trusts, excluding Rs.3,000 to the private temple, which is not approved. The ‘adjusted gross total income’ determined after reducing the amount of Long Term Capital Gain and deduction under Section 80D, would work out to Rs.2,90,000 (i.e.Rs.3,50,000 – Rs.50,000 – Rs.10,000).

In respect of the amount to the Chief Minister’s Relief Fund, the net qualifying amount will be Rs.15,000 since the ceiling of 10% would not apply.

However, in respect of the donations to Senior Citizen’s Home Charity Trust and Care Foundation, the ceiling of 10% would apply and the net qualifying amount would be Rs.29,000 (10% of the ‘adjusted gross total income’ of Rs.2,90,000). The amount deductible under Section 80G would be  100% of the net qualifying amount of donation to the Chief Minister’s Relief Fund i.e. Rs.15,000 and 50% of the net qualifying amount of other donations i.e. Rs.14,500. Accordingly, the deduction under Section 80G in the case of Mr. D would work out to Rs.29,500.


100% DEDUCTION IN RESPECT OF DONATIONS U/S.80GGA

Under Sections 35, 35CCA, 35AC and 35CCB of the Income-tax Act, where a taxpayer deriving business income has made a contribution for scientific research or rural development or for an approved socio-economic welfare project, including conservation of natural resources, he is entitled to deduction in respect of the same @ 100% (weighted deduction of 125% in case of scientific research). With effect from FY 2010-11 i.e. Assessment Year 2011-12, the weighted deduction of 125% in respect of contribution for scientific research has been raised to 175%. In view of the above, donations out of business income to approved institutions like the Gujarat Cancer Research Society are eligible for weighted deduction of 175%.

Similar deduction @ 100% is also available under Section 80GGA to a taxpayer not having business income. In such cases, the ceiling of 10% for determining the deduction as applicable in the case of Section 80G does not apply.

 

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