As per the Income Tax Act (1961), donors can receive tax benefits by donating to charitable organisations under Section 80(G) of the Income Tax Act. To claim donation tax rebate, the donation records must be cited while filing the annual Income Tax Returns. Donations can help avail up to 100% tax exemption for NGOs formally registered with Societies Registration Act 1860, or Section 25 of the Companies Act 1956. This not only provides immediate gratification to donors, but also serves as a government incentive to NGOs. Here are a few key aspects of how a donation, if made to the right NGO, can avail you the benefits of tax rebate.
1. Calculating income tax exemption in donation deduction
Assuming a donation to an NGO or reputed organisation offering 100% tax exemption, your taxable income can be calculated as (Total Income) minus (Donated Amount), generating a net income, on which the income tax is now calculated, based on the prevailing tax rate. However, it must be kept in mind that many donations allow only 50% deduction on the donation amount, and only donations made under Section 80GGA provide 100% tax rebate on the entire donated amount . These apply to sums up to 10% of your taxable income, after deductions, capital gains, income exempt from tax, and Section 10.
2. Types of donations, and their corresponding donation tax benefits
The government has established a Rs. 10,000 limit for claiming a tax deduction for 35 AC or 80G certificates. After your contribution, you will receive a tax certificate that can be attached to your income tax application form. Only donations made via cheque, cash, or online remittance are considered valid for tax exemption. No other forms of donations, such as food, medicine, etc, are applicable for tax purposes.
3. Donations with 100% deduction
Here are ten types of donations that can earn you 100 percent deduction:
1. National Defence Fund set up by the Central Government
2. Prime Minister’s National Relief Fund
3. Fund set up by a State Government for the medical relief of the poor
4. National Illness Assistance Fund
5. National/State Blood Transfusion Council
6. National Trust for the Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation and Multiple Disabilities
7. National Sports Fund/Cultural Fund/Children’s Fund
8. Fund for Technology Development and Application
9. Swachh Bharat Kosh (applicable from FY 2014-15)
10. Clean Ganga Fund (applicable from FY 2014-15)
Documentation for filing income tax returns (ITR) to claim tax rebate:
i. The receipt must mention the name, address and PAN of the trust/organisation
ii.Form 58: Applicable for donations which provide 100% deduction.
iii. The organisation’s Registration number with validity dates
iv. An 80-G Certificate
Further, the NGO must not have a source of tax-exempted income, must not spend on causes that are not humanitarian in nature, must not discriminate spending on community or caste, and must have transparent accounts of receipts and expenditure.