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:
- Donation by an organization towards Indian Olympic Association
- Money donated to the local authority or the government for the purpose of family planning promotions.
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
- One will be able to claim the deduction if the donation is made via cheque, digital payment method, or cash
- The maximum deduction that one can avail of if the payment is done via cash is INR 2000
- There is no maximum limit on the deduction amount if the payment is made via cheque or digital payment methods
- Donations made in kind like those in the form of clothes, food rations, and so on, cannot be claimed as deductions under this section.
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.
No, donations made in kind like clothes or food rations cannot be claimed under section 80G
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.