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Section 80G Deduction : Income Tax Deductions for Donations

The tax benefit of donating to charity

Dhruv donated a small amount to a charity and was pleasantly surprised to find out he could claim a tax deduction on the donated amount. He wasn’t aware that donations to some charities entitled him to a tax discount.

So Dhruv got a double benefit by donating to a worthy cause –it not only helped him do some good in society, he also got to pay less tax! He was the beneficiary of Section 80G of the Income Tax Act which reducedhis taxable income for making these donations.

Section 80G deduction is available to anyone who makes a donation to the prescribed category of charities. There are four different types of deductions available for donation under 80G:

  • 100% deduction without restriction
  • 50% deduction without restriction
  • 100% deduction with restriction
  • 50% deduction with restriction

To get 100% deduction under Section 80G without any restrictions, you need to donate to charities specified by the government. These include National Sports Fund, Prime Minister’s National Relief Fund, National Foundation for Communal Harmony etc.

A 100% deduction with restriction is available to certain donations such as to a government body for family planning or the Indian Olympic Association. These are subject to a limit of 10% of the adjusted gross total income of the assesse.

Donations made to the Prime Minister’s Drought Relief Fund, Indira Gandhi Memorial Fund and National Children’s Fund are entitled to a tax deduction of 50 per cent without any limit.

Charitable causes by local authorities too are entitled to 50 per cent deduction, but with a limit of 10% of adjusted gross total income. This deduction is also allowed for any other fund or institution approved by the tax authorities. You can also claim deductions under this category for repairs or renovation of notified temples, mosques, churches or gurudwaras.

The amount of tax you can save will depend on your adjusted gross total income. Though this seems complicated, calculating it is actually quite simple.

To calculate the deduction under Section 80G of the Income Tax Act, Dhruv needs to calculate adjusted gross total income first. Here’s how he can go about doing it :

Gross Total Incomexxxxx
(-) Long Term Capital Gains(xx)
(-) Short Term Capital Gains on Sale of Shares under 111A(xx)
(-) All other deductions under Sections 80C to 80U(xx)
Adjusted Gross Total Incomexxxxx
  
(-) Deduction under Section 80G of Income Tax Act(xx
Total Taxable Incomexxxxx

In many cases, the deduction is restricted to 10% of adjusted gross total income. For example, if Dhruv’s adjusted gross total income is Rs. 10 lakh, and he makes a donation of Rs. 80,000 to a certain charitable institution, the deduction he can claim can be calculated in this manner:

Maximum deduction = 50% of (10% of Adjusted Gross Total Income)

So the deduction will be restricted to Rs. 50,000, even if he makes a donation of Rs. 80,000.

Other important points to consider :

  • It is essential to have some sort of proof of donation either in the form of a physical receipt or an electronic receipt
  • The donation must be made in any mode other than cash
  • The receipt must mention the PAN number of the charitable fund or institution along with the registration number. These details are essential while claiming the deduction for the purpose of income tax.

If you’re looking for ways to save income tax, 80G provides an excellent option of doing it. You also get to make a difference in society.

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One Thought to “Section 80G Deduction : Income Tax Deductions for Donations”

  1. Anonymous

    I could not resist commenting. Perfectly written!

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