Donate u/c 80G of Income Tax Act, and get Tax Deduction

Most of the tax payers are not much familiar with Section 80G of Income Tax Act. There are two aspects one you are helping the needy poor people and at the same time your tax liability will be reduced to the extent of amount you donated (in some cases). Section 80G of the Income Tax Act offers a tax deduction for donations to certain prescribed funds and charitable institutions. Any person or ‘assessee’ who makes an eligible donation is entitled to get tax deductions subject to certain conditions. This section does not restrict the deduction to individuals, companies or any specific category of taxpayer. The extent of deduction is either 50% or 100% of the contribution, depending on the charitable institution donated to. Donations to certain institutions, the aggregate deduction is limited to 10% of the “Adjusted Gross Total Income”. So, in such cases, even if you do make a donation larger than 10% of your Adjusted Gross Total Income, the donation amount eligible for claiming a deduction would be capped at 10% of the Adjusted Gross Total Income. The Adjusted Gross Total in this case, is the gross total income minus long-term capital gain, short term capital gain and all deductions u/s 80C to 80U except any deduction under this section.

Only donation made to prescribed funds and institutions qualify for deduction: All donations are not eligible for tax benefits. Tax benefits can be claimed only on specific donations i.e. those made to prescribed funds and institutions.

The donation may be paid either out of taxable or exempted income.

Only donations made in cash or cheque are eligible for deductions Donations in kind do not entitle for any tax benefits. For example, during natural disasters such as floods, earthquake, and many organizations start campaigns for collecting clothes, blankets, food etc. Such donations will not fetch you any tax benefits.

a) Donation to Foreign Trust - Donations made to foreign trusts do not qualify for deduction under this section.

b) Donation to Political Parties – the assessee cannot claim deduction for donations made to political parties for any reason, including paying for brochures, souvenirs or pamphlets brought out by such parties.

c) For donations made to Indian Olympic Association, any association notified u/s 10(23) for development of infrastructure for sports or games, or for sponsorship of sports or games, only a company is eligible for deduction.

d) Donations made to not all charitable institutions qualify for a deduction. Here is a list of approved charitable institutions and funds that qualify for a deduction.

e) Donation made by NRI: - NRIs are also entitled to claim tax benefits against donations, subject to the donations being made to eligible institutions and funds

Donations with 100% deduction without any qualifying limit:

Prime Minister’s National Relief Fund

National Defence Fund

1. Prime Minister’s Armenia Earthquake Relief Fund

2. The National Foundation for Communal Harmony

3. Approved university or educational institution of national eminence

4. The Chief Minister’s Earthquake Relief Fund, Maharashtra

5. Donations made to Zila Saksharta Samitis.

6. The National Blood Transfusion Council or a State Blood Transfusion Council.

7. The Army Central Welfare Fund or the Indian Naval Benevolent Fund or The Air Force Central Welfare Fund.

Donations with 50% deduction without any qualifying limit.
1.Jawaharlal Nehru Memorial Fund
2.Prime Minister’s Drought Relief Fund
3.National Children’s Fund
4.Indira Gandhi Memorial Trust
5.The Rajiv Gandhi Foundation

Donations to the following are eligible for 100% deduction subject to 10% of adjusted gross total income
1.Donations to the Government or a local authority for the purpose of promoting family planning.
2.Sums paid by a company to Indian Olympic Association

Donations to the following are eligible for 50% deduction subject to 10% of adjusted gross total income
1.Donation to the Government or any local authority to be utilized by them for any charitable purposes other than the purpose of promoting family planning.

In order to claim deduction, it is mandatory for the donor to furnish a proof of payment towards the eligible fund or institution. A stamped receipt is issued by the recipient trust in this regard, which must be attached by the assessee along with the income tax returns.

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

Tax benefits cannot be claimed without the above mentioned details and document.

Donations deducted from salary - Employees can claim deduction u/s 80G provided a certificate from the Employer is received in which employer states the fact that The Contribution was made out from employee’s salary account . .

There are many trusts in India engaged in charitable activities. In order to ensure that only contributions to genuine trusts entail a tax benefit, the government has brought in registration of trusts. Thus, before you donate, check to see, if the trust you are donating to is registered and has the tax exemption certificate, which is popularly known as the 80G certificate.

Direct Tax Code (DTC) to come into force from April,2012 – Finance Minister

Finance Minister Pranab Mukherjee on Wednesday expressed the hope that the Direct Taxes Code ( DTC), which seeks to modernize tax laws in the country, will come into force from April 1, 2012.



Shri Mukherjee said that this conference addresses on important theme namely, “Tax and Inequality” which is a central concern for effective governance and just functioning of a modern welfare nation-state. He stated that the intricate relationship between growth and inequality poses challenges for the formulation of tax policy in both developed, as well as developing countries. Shri Mukherjee said that on the one hand, progressive tax policy is a means to address growing inequalities in incomes and wealth and on the other hand, it provides resources to address the structural issues in inequality and poverty. He said that it facilitates the implementation of public programmes and expenditure policies for capacity building of the less fortunate individuals and communities within countries. At the same time, tax policy has implications for incentivizing economic activity, savings, production or consumption, and hence growth. It is thus a vital instrument of public policy and has to be carefully used, the Minister said.





The Finance Minister said that the policy makers need to make difficult choices about how tax systems can best support growth and help in creating fair and equitable societies. He said that principles of horizontal and vertical equity are important if a tax system is to be seen as fair. Shri Mukherjee said that tax administration, which includes mechanisms to register taxpayers, collect revenue, enforce compliance and provide redress when required, also has a direct bearing on fairness of tax policy. The Minister said that a good tax policy if not administered properly may result in a distribution of the tax burden very different from that which would occur if the tax code was administered effectively.







Shri Pranab Mukherjee said that there is much that we can learn from each other’s tax systems, working experience and the best practices and there is also a need to collaborate and align and make our tax systems speak to each other as we get integrated and the cross-border economic transactions multiply. He stated that the deliberations in the conference would contribute to that process. Informed policy making leads to better tax policy and tax administration and better tax policy and effective tax administration leads to better lives for our citizens, he said.







The Finance Minister said that the issue of the tax reforms was at the heart of the process of economic reforms and liberalization that India embarked on in the early 1990s and we had come a long way since then. He said that the tax reforms though gradual have been systemic in scope, particularly when we consider the proposals currently awaiting implementation. The reforms have covered both the direct taxes as well as the indirect taxes. Shri Mukherjee said that the proposed Direct Taxes Code brings together the policy initiatives on the direct taxes and is slated to come into force from the next financial year. Similarly, he stated that we are moving towards an economy-wide generalized value added tax system of goods and service taxes at all levels in the country. The Finance Minister said that the tax reforms have been directed at:







· Simplification of tax system and its administration;



· Rationalization of tax rates;



· Broadening of tax base;



· Special focus on sunrise area of taxation like transfer pricing and international taxation;



· Strengthening tax information exchange network with countries/ jurisdiction;



· Improvement of tax administration;



· Better tax payer services and reduction in cost of compliance;



· Robust dispute resolution mechanism; and



· Focused enforcement on high net worth individual tax abuse practices and high revenue risk.





Shri Mukherjee said that an efficient tax system is a fundamental requirement for sustained development of any nation. Taxes underwrite the capacity of a nation to implement its development and welfare goals, he said. The Finance Minister said that it is a means to promote equity in the distribution of gains from economic growth in a country like India. He stated that we have adopted a progressive personal income tax to address the inequality and our progressive direct tax policy has resulted in a ten-fold increase in direct tax revenue from USD 8.62 billion in the fiscal year 1996-97 to US 87 billion in fiscal year 2010-11. The Finance Minister said that more importantly, the composition of our tax revenues has altered significantly in favour of direct taxes which now account nearly 60 per cent of our total tax revenues. We have tried to address the issue of gender inequality and old age vulnerabilities by providing some tax relief to women and old people, he said.





Shri Mukherjee said that tax evasion undermines the intended benefits of a progressive tax policy. He said that the problem is compounded by illicit outflow of money from emerging economies and developing countries. Global financial integrity has estimated such annual illicit outflows averaging between USD 725 to 810 billion from these countries. The Finance Minister said that the Indian Government has adopted a five pronged strategy to deal with issues of tax evasion and black money which includes:



· Joining the global crusade against black money;



· Creating an appropriate legislation framework;



· Setting up institution for dealing with illicit money;



· Developing systems for implementations; and



· Imparting skill to the manpower for effective action.







In his concluding remarks, Shri Mukherjee said that the strategy has started showing result. However, resolution of these issues requires international co- operation and alignment of tax systems for better cross-border compliance, he added. The Finance Minister said that the complexity of cross border transactions is on a rise and presents a serious challenge to tax administrators in practicing and bringing equality. The opacity of tax systems in some of the jurisdiction is adding to the challenges. There has been some movement on these issues in response to the initiative by G-20 but we need to pursue this to its logical end, he said.







Speaking on the occasion, China’s Vice Minister of Finance, Mr. Wang Jun said that at the crucial moment of world economic and social development, it is of great importance and significance for people from the world financial and tax communities to gather together, share their experience and wisdom to make their contributions to a more balanced global economy, more equitable international community and more harmonious human society.



Deputy Managing Director, IMF, Mr. Min Zhu said that the IMF had been focused on the issues of inequality and poverty for many years, across the range of their activities. He said that in its surveillance and program work, IMF has long highlighted, to give just one example, that the benefits of the huge fuel subsidies in many countries go overwhelmingly to the richest, and that there are better ways to help the poor.



Also present on the occasion were Minister of State for finance (Revenue), Shri S.S. Palanimanickam and Minister of State for Finance (Expenditure, Banking and Insurance), Shri Namo Narain Meena