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Income Tax Deduction on Donation

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Maharshi Shah

Income Tax
Tax Benefits
Tax on Donation
Last updated on July 24th, 2021

Donations made to certain specific charitable institutions and relief funds are fully or partially exempt from taxation. Donations made to political parties are also available for exemption. The article will give you a brief on how one can claim income tax deduction on donation to reduce tax liability.

Income Tax Deduction on Donation made to Institutions and Funds

An assessee can claim a tax deduction on donation under section 80G of the Income Tax Act 1961. According to this section, one can either claim 100% or 50% of the total amount donated as a deduction subject to the ‘with’ or ‘without’ upper limit. As stated earlier the government notifies/updates the institutions and funds where any donation is fully or partially exempt from taxation.

Deduction on Donation with Upper Limit

For institutions or funds where the ‘with upper limit clause’ is applicable, a deduction of either 50% or 100% of 10% of the adjusted gross total income can be claimed. This percentage is also specified by the government for every institution and fund. The donations made towards the following institutions will fall under this category:

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Deduction on Donation without Upper Limit       

If one donates to funds or institutions where ‘without upper limit’ is applicable, one can claim a flat 50% or 100% of the donation amount. The Prime Minister National Relief Fund and National Defence Fund are some of the funds where the condition of claiming 100% of the donation amount as a deduction is applicable. Some of the many Trust Funds where 50% of the donation amount is available for deduction are Jawahar Lal Nehru Memorial Fund and Prime Minister’s Drought fund.

Mode of Payment

Income Tax Deduction on Donation made to Political Parties

Donations made to political parties can be claimed as a deduction under section 80GGC and 80GGB of the Income Tax Act, 1961. Individual taxpayers can claim the deduction under section 80GGC and companies can claim a deduction under 80GGB. There is no maximum upper limit specified and so any amount that has been contributed can be claimed as a deduction.

It is important to note that the donation made in the form of cash are not eligible for a deduction.

FAQs

If I donate clothes to a charitable institution can I claim deduction under 80G?

No, donations made in kind like clothes or food rations cannot be claimed under section 80G

Do I need to show receipt of the donation made to a political party?

Yes, as proof of the donation, the political party will issue a receipt. It will contain the name and address of the party, the amount donated and the PAN and TAN of the party. This receipt will be needed.

Got Questions? Ask Away!

  1. Hey @sushil_verma

    There are a wide range of deductions that you can claim. Apart from Section 80C tax deductions, you could claim deductions up to INR 25,000 (INR 50,000 for Senior Citizens) buying Mediclaim u/s 80D. You can claim a deduction of INR 50,000 on home loan interest under Section 80EE.

  2. Hey @Dia_malhotra , there are many deductions that you can avail of. Your salary package may include different allowances like House Rent Allowance (HRA), conveyance, transport allowance, medical reimbursement, etc. Additionally, some of these allowances are exempt up to a certain limit under section 10 of the Income Tax Act.

    For eg,

    • Medical allowance is exempt up to INR 15,000 on a reimbursement basis.
    • Children education allowance is exempt up to Rs. 200 per child per month up to a maximum of two children.
    • Conveyance allowance is exempt up to a maximum of Rs. 1600 per month.

    Tax on employment and entertainment allowance will also be allowed as a deduction from the salary income. Employment tax is deducted from your salary by your employer and then it is deposited to the state government.

  3. The benefit Section 80EEB can be claimed by individuals only. An individual taxpayer can claim interest on loan of an electric vehicle of up to INR 1.5 lacs u/s 80EEB. However, if the electric vehicle is used for the purpose of business, the vehicle should be reported as an asset, loan should be reported as a liability and the interest on loan can be claimed as a business expense irrespective of the amount. (We have updated the article with the changes).

    Thus, if you have a proprietorship business, you should claim interest amount as a business expense only if the vehicle is used for business purpose. However, if it is used for personal purpose, you can claim deduction of interest u/s 80EEB in your ITR since you would be reporting both personal and business income in the ITR (under your PAN).

    As per the Income Tax Act, the deduction under Section 80EEB is applicable from 1st April 2020 i.e. FY 2020-21.

  4. Hey @Sharath_thomas , we have updated the content according to the appropriate assessment year. Thanks for the feedback. :slight_smile:

  5. Hey @shindeonkar95

    In case of capital gain income (LTCG/STCG), transfer expenses are allowed as deduction, except STT.

    However, in case of business income (F&O, intraday), all expenses incurred for the business (including STT) are eligible to claim deduction in ITR.

    Hope, it helps!

  6. Hello,

    Is it possible to claim deductions under S. 80CCF for Infra bonds bought in the secondary market and held to maturity?

    There were a number of 10 year infra bonds issued in the 2010- 2013 period, which will start maturing soon. These are all listed on the exchanges (although hardly any liquidity or transactions in them). If I were to buy some of these bonds in the open markets and hold them in my demat to maturity (<3 years), is it possible to claim tax deductions (upto 20k per year) under 80CCF for buying?

    I couldn’t find anything on this. Any help is appreciated.

  7. Hello @Veejayy,

    Yes you can claim deduction under 80CCF for investment made in specified infrastructure and other tax saving bonds bought in the secondary market and held to maturity.

    Deduction under Section 80CCF can be availed only through investment in certain tax saving bonds, issued by banks or corporations after gaining permission from the government which shall be restricted upto 10,000 per year.

    These bonds are generally long term bonds, having tenure of more than 5 years with a lock in period of 5 years in most of the cases. These bonds can be sold after the lock in period!

    Also, interest earned on these bonds will be taxable.

    Hope this helps!

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