How to claim deduction under Section 80G
Contributions made to certain relief funds and charitable institutions can be claimed as a deduction under Section 80G of the Income Tax Act. All donations, however, are not eligible for deductions under Section 80G. Now, the taxpayers are eligible to claim the deduction only if the donee’s has filed the statement of all donations received and the same is reflected in the database of the taxpayers.
The question arises as to how to calculate the deduction and who is eligible to claim? Is there any maximum limit?
Who can claim an 80G deduction?
If you are eligible to pay tax, you are automatically qualified to claim a tax deduction under Section 80G. It does not matter that you – the taxpayer – is an individual, company, firm, HUF, or any other person. However, you need to either be a resident Indian or a non-resident Indian (NRI) with an Indian passport. In both cases, you should have a taxable income in India to qualify for an exemption.
What donations are eligible for tax deduction under Section 80G?
- Donations should be made to approved recipients.
- In addition to the receipt for such donations, a certificate is required to take advantage of the deduction.
- A donation made in kind cannot be deducted.
- If a cash donation exceeds Rs. 2,000, it cannot be deducted. (i.e. The donation should be made in any mode of payment other than cash if it exceeds Rs. 2,000)
What is the amount of tax deduction available under Section 80G?
Amount of Deduction is based on the Donee to whom the Donation is made. The following amount of Deduction is available based on categories of donation:
- 100% of Category 1 donation
- 50% of Category 2 donation
- 100% of Category 3 – Subject to the qualifying limit (maximum limit is called qualifying limit)
- 50% of Category 4 – Subject to the qualifying limit (maximum limit is called qualifying limit)
What is the Qualifying Limit?
All donations made to donees (recipients) listed in Category 3 and 4 combined should not exceed 10% of Adjusted Gross Total Income.
What are the categories of donations?
Donations fall into the following categories:
Category 1 – Donations eligible for 100% deduction without qualifying limit
- National Defence Fund set up by the Central Government
- Prime Minister’s National Relief Fund
- National Foundation for Communal Harmony
- An approved university/educational institution of National eminence
- Zila Saksharta Samiti constituted in any district under the chairmanship of the Collector of that district
- Fund set up by a state government for the medical relief to the poor
- National Illness Assistance Fund
- National Blood Transfusion Council or to any State Blood Transfusion Council
- National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation, and Multiple Disabilities
- National Sports Fund
- National Cultural Fund
- Fund for Technology Development and Application
- National Children’s Fund
- Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund with respect to any State or Union Territory
- The Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force Central Welfare Fund, Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996
- The Maharashtra Chief Minister’s Relief Fund during October 1, 1993, and October 6, 1993
- Chief Minister’s Earthquake Relief Fund, Maharashtra
- Any fund set up by the State Government of Gujarat exclusively for providing relief to the victims of the earthquake in Gujarat
- Any trust, institution or fund to which Section 80G(5C) applies for providing relief to the victims of the earthquake in Gujarat (contribution made during January 26, 2001, and September 30, 2001)
- Prime Minister’s Armenia Earthquake Relief Fund
- Africa (Public Contributions – India) Fund
- Swachh Bharat Kosh (applicable from FY 2014-15)
- Clean Ganga Fund (applicable from FY 2014-15)
- National Fund for Control of Drug Abuse (applicable from FY 2015-16)
Category 2 – Donations eligible for 50% deduction without qualifying limit
- The Jawaharlal Nehru Memorial Fund,
- Prime Minister’s Drought Relief Fund,
- Indira Gandhi Memorial Trust,
- Rajiv Gandhi Foundation.
Category 3 – Donations eligible for 100% deduction subject to qualifying limit
- Donation to Government or any approved local authority for the promotion of Family Planning.
Category 4 – Donations eligible for 50% deduction subject to qualifying limit
- Donations to Charitable institutions who provide a certificate.
How to calculate the deductible amount under Section 80G?
The following are the steps to calculate the deduction under Section 80G:
- Determine which category the fund/charitable organization belongs to (100 percent or 50% deduction with or without a maximum / qualifying limit). The entire list is discussed hereinabove.
- If the payment is made to the first category, no additional calculations are required; simply claim 100% or 50% of the donation amount as taxable income.
- Before making a payment to the second category, you must first determine the maximum/qualifying limit. 10% of “adjusted gross total income” is the highest / qualifying limit.
Further, to calculate the amount of deduction, use this formula:
- Gross Qualifying Limit = All donations made to Category – 2
- Net Qualifying Limit = It is 10% of the “Adjusted Gross Total Income”.
- Amount Deductible = 100% or 50% of the donation amount subject to the qualifying limit.
What is “Adjusted Gross Total Income”?
For calculation of tax exemption under Section 80G, the “adjusted gross total income” refers to the total amount of your earnings under all headings less (minus) the following amounts:
- Deductible amount under Sections 80C and 80U of the Income Tax Act (Except 80G)
- Income from which no tax is due/payable.
- Under Section 112 and Section 112A, long-term capital gains that have been included in gross total income.
- Under Section 111A the short-term capital gains
- Income described in Sections 115A, 115AB, 115AC, or 115AD of the Income Tax Act.
