Tax savings u/s 80G: Some time your tax benefit can be more than money donated

If you have already exhausted the Rs1.50 lakh limit investment under section 80C, also bought a health insurance policy, made an additional contribution to NPS(u/s 80CCD), you still have ways and means to reduce your tax liability. You can save tax using the deductions available under section 80G of the Income Tax Act. Section 80G of the I-T Act allows donations made to specified relief funds and charitable institutions as a deduction from gross total income before arriving at taxable income. Not only you are contributing to a noble cause, but this section will also help you to reduce considerable tax liability.

For example, Mr.Ram’s taxable income for the current financial year arrived at Rs 505000 after his Gross Total Income minus (i) all exempted incomes, (ii) long-term capital gains and, (iii) all deductions under section 80C to 80U except for 80G. Therefore, Mr.Ram is liable to pay an income tax of Rs 14040 as his taxable income exceeds Rs.5 lakh. Suppose Mr.Ram donates Rs.5000 to a specified Charitable Trust, his taxable income reduces to Rs.500000.Now Ram is entitled to claim a tax rebate of Rs. 12,500 under section 87A as his income does not exceed Rs 5 lakh. Thus his taxable income becomes Nil and he saves tax liability of Rs 14040 by donating Rs 5000.

The amount of donation which can be claimed as a deduction under section 80G is governed by certain income tax rules. The tax-payers can claim either 100% or 50% of the amount donated as a deduction subject to ‘With’ or ‘Without’ the upper limit as provided under section 80G.

The Prime Minister’s National Relief Fund, National Defence Fund, Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund with respect to any State or Union Territory, Swachh Bharat Kosh (applicable from FY 2014-15), Clean Ganga Fund (applicable from FY 2014-15), and National Fund for Control of Drug Abuse (applicable from FY 2015-16) are some examples of funds set up by the central government on which ‘without upper limit’ and 100% deduction clauses are applicable. An Individual can claim a deduction on 100% of the amount donated. The Donations Eligible for 50% Deduction ‘Without Qualifying Limit’ are Jawaharlal Nehru Memorial Fund, Prime Minister’s Drought Relief Fund, Indira Gandhi Memorial Trust, and Rajiv Gandhi Foundation.

Deduction on donations ‘With upper limit’:

Donations made to certain institutions where the ‘With upper limit’ clause is applicable then deduction can be claimed as either 100% or 50% (whichever is permitted for that specific entity) of 10% of the Gross adjusted income of the individual*.

Donations to the government or any approved local authority, institution, or association to be utilized for the purpose of promoting family planning, donation by a Company to the Indian Olympic Association, or to any other notified association or institution established in India for the development of infrastructure for sports and games in India, or the sponsorship of sports and games in India are eligible for 100% claim of deductions subject to 10% of Adjusted Gross Total Income. Other institutions or funds which satisfy conditions under section 80G (5) are eligible for 50% claim of deductions subject to 10% of Adjusted Gross Total Income. Any corporation referred to in Section 10(26BB) for promoting the interest of the minority community,and for repairs or renovation of any notified temple, mosque, gurudwara, church or other places are a few examples which falls under this category.

*Gross Adjusted income for this purpose is calculated as Gross Total Income minus (i) all exempted incomes, (ii) long-term capital gains and, (iii) all deductions under section 80C to 80U except for 80G.

Similarly, any donation to political parties made by an Individual can claim a 100% deduction without maximum limit under section 80GGC of the I-T Act.