Illustration: Shrikrishna Patkar
Illustration: Shrikrishna Patkar

Get tax benefits on donations

  • A taxpayer can claim tax deductions on charitable contributions under sections 80 GGC, 80 G and 80 GGA of the Income Tax Act
  • These sections do not have an upper limit like Section 80 C

Mumbai: What if you could support a charitable cause and receive tax benefits for the same? The income tax department encourages donations for charity by offering some tax deductions under the Income Tax Act, 1961.

There are three sections in the Income Tax Act under which a taxpayer can claim tax deductions on charitable contributions: sections 80 GGC, 80 G and 80 GGA. These sections do not have an upper limit unlike other sections, like 80 C, where deductions of up to 1.5 lakh only can be claimed.

Donation to political parties or electoral trust

While we step into a crucial election year, let’s review on how donating to electoral trusts and political parties will give us some tax benefit. The concept of electoral bonds was introduced in the Budget in the year 2017 to promote a transparent political funding system. Not only can you assure yourself of some transparency, the income tax act also provides you a tax benefit on the same. Electoral bonds can be bought from any of the branches of State Bank of India.

“By making a donation to political parties and electoral trusts, you can receive a deduction under two sections: section 80 GGC if you are an individual and section 80 GGD if you have donated as a company," said Rahul Singh, chartered accountant with Taxmann Publications, a publisher of taxation and corporate laws.

The entire amount you donate is eligible for deduction. Also, the income tax department has cautioned all tax payers against donating more than 2,000 to political parties in cash. Political parties get an exemption on the face value of the bonds under section 13A.

Donation to religious institutions and charitable institutions

Under section 80G of income tax Act, you can get tax benefit if you donate to charity institutions, religious institutions or trusts.

Although as an informed taxpayer, you have to be careful that the entity has been approved by the commissioner of income tax.

Cash donations exceeding 2,000 will not be eligible for deduction. Some of the approved entities include India Wildlife Conservation Trust, Bengaluru, Model Education and Welfare Society, Aurangabad, National Defence Fund and Indira Gandhi Memorial Trust. This section gives you the liberty of donating without an upper limit.

“Section 80G prescribes few institutions where deduction is allowed at the rate of 100% of amount donated and a few institutions where deduction is allowed at the rate of 50% of amount donated," said Singh.

The other category applies a limit to the amount on which you can claim a deduction. The deduction allowed is restricted to 100% or 50% of a net qualifying amount and not the amount donated.

Donation for research and development

You can get tax benefits by contributing to the scientific development in the society under section 80 GGA.

“You have to be careful that the institution you are donating to is using the money for scientific research or for social science or statistical research," said Singh.

Hence, you should donate to those entities which are approved by the income tax department for section 80 GGA . Donation to All India Institute of Medical Sciences (AIIMS), Rajiv Gandhi Foundation and Indian Institutes of Technology (IIT) fall in this category.

You will receive complete 100% deduction although cash donations exceeding 10,000 will not be eligible; also if you have received income from a business or profession during the year, you are not eligible for donation under this section, said Singh.

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