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Chapter 9 Section 80G Of The Income Tax Act

If charity begins at home, Section 80G of the Income Tax Act is the government’s way of recognizing your good work. Doing charity is a noble task, which is why even the tax department acknowledges this fact. The Income Tax Act clearly defines the list of donations that are eligible for exemption from your income and these are covered under Section 80G of the Income Tax Act. Section 80G of the Income Tax Act offers a tax deduction on contributions made to certain charitable institutions prescribed under the Income Tax Act, 1961.

Who can contribute and how to contribute?

Unlike many other sections of the Income Tax Act, Section 80G can be availed by any category of tax payer, and it need not necessarily be an individual only. In fact, any taxpayer can claim this tax deduction for making donations as long as these donations are made towards an approved charitable institution, as clearly spelt out in Section 80G of the Income Tax Act and modified from time to time through appropriate circulars.

This brings us to the next question; how can these donations be made towards Section 80G charitable institutions? In fact, only donations made in the form of cash or cheque are eligible for tax deduction. However, donations made in cash do not qualify for a tax deduction exceeding Rs2,000 in any financial year. This limit used to be Rs10,000 for cash payments till the end of financial year 2016-17. However, post the digitization thrust taken up by demonetization, the Income Tax Act further reduced this eligible cash donation to Rs2,000 per fiscal year. If your overall donation includes a cash component of more than Rs2,000, then that portion in excess of Rs2,000 will not qualify for Section 80G deduction. Any permitted non-cash payment is eligible for deduction under Section 80G and includes payment via cheque/demand draft/pay order/NEFT/RTGS/IMPS/Debit Card/UPI, etc., where there is a clear banking trail of funds.

4 categories of exemptions available under Section 80G of the Income Tax Act

The Income Tax Act has broadly classified the Section 80G Exemption Benefits into 4 broad categories based on their eligibility for exemption. While we shall look at the specific items included in each category later in this chapter, let us under these categories first.

  • Category 1A: Where deduction is available without any upper limit. These charity institutions/schemes qualify for 100% exemption on the contribution made during the financial year. The total exemption under this category will be restricted to the taxable income in all cases. You cannot report a loss after deducting Section 80G benefits, nor can you carry forward any loss to future years. This exemption is only permitted to the extent of your total taxable income.

  • Category 1B: Where deduction is available without any upper limit. However, these charity institutions/schemes qualify for 50% exemption on the actual contribution made during the financial year. Again, the total exemption under this category will be restricted to the taxable income in all cases. You cannot report a loss after deducting these Section 80G benefits, nor can you carry forward any loss to future years. This exemption is only permitted to the extent of your total taxable income.

  • Category 2A: Where deduction is subject to a maximum limit of 10% of Adjusted Gross Total Income and donations are eligible for 100% exemption for your contribution, but for the purpose of tax calculation, the total exemption claimed cannot exceed 10% of Adjusted Gross Total Income. We shall see later in this chapter how Adjusted Gross Total Income (AGTI) is calculated.

  • Category 2B: Where deduction is subject to a maximum limit of 10% of Adjusted Gross Total Income and donations are eligible for 50% exemption for your contribution, but for the purpose of tax calculation, the total exemption claimed cannot exceed 10% of Adjusted Gross Total Income.

Before we get into the above 4 categories of Section 80G exemptions, let us first understand the key documents that are required for the purpose of claiming Section 80G benefits under the Income Tax Act.

Documentation required for claiming deduction under Section 80G of the Income Tax Act

The following documents are important to claim tax exemption under Section 80G of the Income Tax Act. It is always better to ensure that documentation is in place as it will ensure that claims do not get rejected by the Income Tax Department or you do not get any queries from the department. An important point to remember here! If you are employed with an organization, the HR department normally does not accept Section 80G proofs for the purpose of Tax Deduction at Source (TDS). The HR department will deduct tax assuming that Section 80G contributions were not made. The onus is on the assessee to subsequently include the details of Section 80G in the Income Tax Returns and claim refund from the Income Tax Department.

Here are some of the key documents that are essential for claiming benefits under Section 80G of the Income Tax Act.

Stamped receipt:

For claiming deduction under Section 80G, a receipt issued by the recipient trust is a must. The receipt must contain the name , address & PAN of the Trust, the name of the donor, and the amount donated (it must be ensured that the amount written in words and figures tally). In case of donations which are eligible for 100% deduction, the assessee must also insist on Form 58 from the trust. Form 58 clearly lays out the details of project cost (for which the donation is received), amount authorized under this project, and the actual amount collected. Without Form 58, the claim for 100% deduction could be rejected even if the receipt mentions 100% deduction.

Section 80G Registration Numbers of the Trust on receipt:

Registered trusts are assigned a unique Registration Number which makes them eligible as authorized Section 80G trusts. The Registration number issued by the Income Tax Department under Section 80G must be clearly printed on the receipt. Generally, the Income Tax Department issues the registration for a limited period (of 2 years) only. Thereafter, the registration has to be renewed. The receipt must not only mention the Registration number but also the validity period of the registration and the date of expiry of the registration. The assessee must also check these details before making the contribution.

Check validity of Registration under Section 80G on date of Donation:

The donor must ensure that the registration is valid on the date on which the donation is given. For example, the registration of a trust may be valid from April 1, 2007 to March 31, 2009. Now, if the trust does not get its registration renewed on or after April 1, 2009, even if a donation receipt is issued by the trust to the donor for donations received on or after April 1, 2009, the donor would not get any tax benefit. This rule has been slightly modified for the sake of simplicity. Registrations are now deemed to be valid unless the Income Tax Department specifically asks the trust to apply for renewal. The following dates are important. With effect from 1st October, 2009, a trust need not apply for the renewal of 80G certificate, if the same is valid on 01.10.2009 or valid up to a date thereafter, unless the Department specifically asks the trust to apply for renewal. This means that the old 80G certificate will remain valid if the same is valid on 01.10.2009.

Photocopy of Section 80G Certificates:

Check the validity period of the 80G certificate. Always insist on a photocopy of the 80G certificate in addition to the receipt. However, this document is not mandatory to claim tax deduction. You can ask for a photocopy of this certificate to ensure that it is still valid.

Maximum Deduction limit under section 80G

As laid out earlier in this chapter, some donations qualify for either 50% or 100% tax deduction irrespective of the amount of contribution, whereas some others qualify for the same deduction but up to a maximum limit of 10% of Adjusted Gross Total Income (AGTI) of the taxpayer only. So, broadly they can be divided into 4 categories as under:

  • Category 1A: Where deduction is available without any upper limit up to 100% of the contribution made. c

  • Category 1B: Where deduction is available without any upper limit but subject to 50% exemption on the actual contribution made

  • Category 2A: Where deduction of 100% exemption is available subject to a maximum limit of 10% of Adjusted Gross Total Income

  • Category 2B: Where deduction of 50% exemption is available subject to a maximum limit of 10% of Adjusted Gross Total Income

However, in cases of Category 1A and Category 1B, the total exemption claimed under Section 80G cannot, under any circumstances, exceed the taxable income. There is no concept of declaring a loss after providing for Section 80G or for carrying forward any losses due to Section 80G exemptions.

Understanding the concept of Adjusted Gross Total Income?

Before getting into the specifics of the categories of Section 80G, let us understand what Adjusted Gross Total Income (AGTI) actually means and how it is calculated.

Adjustment Particulars of the Tax Head Amount
Gross Total Income 1,000
Less: Long Term Capital Gains 100
Less: Short Term Capital Gains u/s 111A 180
Less: Deductions u/s 80C to 80U (except 80G) 90
Less: All exempt incomes 100
Less: Income referred to Section 115A to 115D -
Adjusted Gross Total Income 530
Less: Deduction under Section 80G 120
Total Taxable Income 410

The above definition of Adjusted Gross Total Income (AGTI) is what is used for the actual classification of the Section 80G contribution. Let us now look at the specific contributions laid down by the Income Tax Act for each of these categories.

Category 1A: Section 80G deduction available without any upper limit up to 100% of the contribution made.

  • National Illness Assistance Fund

  • National Blood Transfusion Council or to any State Blood Transfusion Council

  • National Defence Fund set up by the Central Government

  • Prime Minister’s National Relief Fund

  • National Foundation for Communal Harmony

  • Zila Saksharta Samiti constituted in any district under the chairmanship of the Collector of that district

  • Fund set up by a State Government for the medical relief to the poor

  • National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation, and Multiple Disabilities

  • An approved university/educational institution of National eminence

  • National Sports Fund

  • National Cultural Fund

  • Fund for Technology Development and Application

  • National Children’s Fund

  • Chief Minister’s Relief Fund or Lieutenant Governor’s Relief Fund with respect to any State or Union Territory

  • The Army Central Welfare Fund or the Indian Naval Benevolent Fund or the Air Force Central Welfare Fund, Andhra Pradesh Chief Minister’s Cyclone Relief Fund, 1996

  • The Maharashtra Chief Minister’s Relief Fund during October 1, 1993, and October 6, 1993

  • Chief Minister’s Earthquake Relief Fund, Maharashtra

  • Any fund set up by the State Government of Gujarat exclusively for providing relief to the victims of earthquake in Gujarat

  • Any trust, institution, or fund to which Section 80G(5C) applies for providing relief to the victims of earthquake in Gujarat (contribution made during January 26, 2001 and September 30, 2001)

  • Prime Minister’s Armenia Earthquake Relief Fund

  • Africa (Public Contributions – India) Fund

  • Swachh Bharat Kosh (applicable from FY 2014-15)

  • Clean Ganga Fund (applicable from FY 2014-15)

  • National Fund for Control of Drug Abuse (applicable from FY 2015-16)

The above contributions will qualify for 100% contribution without any upper limit on the claim. Of course, the benefit of Section 80G cannot exceed the total taxable income nor can it be carried forward to future assessment years.

Category 1B: Where deduction is available without any upper limit but subject to 50% exemption on the actual contribution made

  • Jawaharlal Nehru Memorial Fund

  • Prime Minister’s Drought Relief Fund

  • Indira Gandhi Memorial Trust

  • Rajiv Gandhi Foundation

The above contributions will qualify for 50% contribution without any upper limit on the claim. Of course, the benefit of Section 80G cannot exceed the total taxable income, nor can it be carried forward to future assessment years.

Category 2A: Where deduction of 100% exemption is available subject to maximum limit of 10% of Adjusted Gross Total Income

  • Government or any approved local authority, institution or association to be utilized for the purpose of promoting family planning.

  • Donation by a Company to the Indian Olympic Association or to any other notified association or institution established in India for the development of infrastructure for sports and games in India or the sponsorship of sports and games in India.

Category 2B: Where deduction of 50% exemption is available subject to a maximum limit of 10% of Adjusted Gross Total Income

  • Any other fund or any institution which satisfies conditions mentioned in Section 80G(5)

  • Government or any local authority to be utilized for any charitable purpose other than the purpose of promoting family planning

  • Any authority constituted in India for the purpose of dealing with and satisfying the need for housing accommodation or for the purpose of planning, development or improvement of cities, towns, villages or both

  • Any corporation referred in Section 10(26BB) for promoting interest of a minority community

  • For repairs or renovation of any notified temple, mosque, Gurudwara, church, or other places of worship

Donations to political parties and other purposes

With the government permitting individuals to contribute to political parties, there is confusion as to whether the contribution to political parties also qualifies for tax benefit under Section 80G. While contributions to political parties do qualify for tax breaks, it is not under Section 80G. Political donations made to parties can be claimed under Section 80GGC offers tax deduction for donations made to political parties. Similarly, donations made for the purpose of Scientific Research entitle you to a deduction under Section 80GGA of the Income Tax Act. Further, there are occasions when your employer may contribute directly to a specific flood relief fund. In that case, a certificate of deduction from the employer is good enough for you to claim the Section 80G benefit.

Illustration 1:

Apoorva Shah contributed Rs.50,000 to the National Defence Fund. His adjusted gross total income (AGTI) for the year is Rs.4,25,000. How much deduction will Apoorva be entitled to under Section 80G of the Income Tax Act?

The National Defence Fund is a Category 1A contribution which qualifies the contributor for exemption up to 100% of the contribution without any other upper limit on the tax benefit. In this case, the AGTI will not be relevant for Apoorva and the entire amount of Rs.50,000 will be exempt under Section 80G of the Income Tax Act.

Illustration 2:

Mayank contributed Rs.25,000 to the National Children Fund. He paid Rs.5,000 in cash, Rs.10,000 in cheque, and Rs.10,000 online on the web using his debit card. What will be his eligible exemption under Section 80G?

The National Children Fund is a contribution that entitles the contributor for 100% tax relief without any limitation. However, the Income Tax Act does not permit any donations under Section 80G to be made in cash beyond Rs.2,000. Other modes of payment like cheque/DD/Debit Card/NEFT/IMPS are all permitted as they leave a banking audit trail. In the above case, Mayank will get an exemption for the full contribution made in cheque and by debit card. However, on his cash portion, he will only get exemption for Rs.2,000 and the balance Rs.3,000 will not entitle him to any exemption. Thus Mayank’s total exemption in this case will be Rs.22,000 (10,000 by cheque + 10,000 by Debit Card + 2,000 limits on cash).

Illustration 3:

Radhika contributes the following amounts for Section 80G benefit claims to reduce her taxable income:

National Defence Fund – Rs.10,000

Rajiv Gandhi Foundation – Rs.8,000

Contribution to notified Maharashtra Sports Association – Rs.25,000

Contribution to repairs of local notified temple – Rs.6,000

Radhika’s adjusted gross total income (AGTI) for the year is Rs.2,20,000. What is the total exemption she can get under Section 80G?

To calculate Radhika’s actual exemption eligible for Section 80G, we need to first put each of these contributions into appropriate brackets.

  • National Defence Fund is a Category 1A contribution with 100% exemption without any upper limit. Hence, the entire Rs.10,000 contributed by her will be exempt.

  • Rajiv Gandhi Foundation is a Category 1B contribution with 50% exemption without any upper limit. Hence, 50% of her contribution, i.e., Rs.4000 will be eligible for exemption.

  • Maharashtra Sports Association is eligible for exemptions as a Category 2A institution. Hence 100% of the contribution will be eligible, but subject to 10% of AGTI. Since her AGTI is Rs.2,20,000, her exemption will be limited to Rs.22,000, although her actual contribution is higher.

  • Contribution to notified temple repairs being a Category 2B contribution makes her eligible to 50% deduction subject to an upper limit of 10% of AGTI. So, 50% of her contribution of Rs.6000 will be eligible for exemption, i.e., Rs.3,000

Thus, Radhika gets a total Section 80G exemption of Rs39,000 as above. This amount can be deducted from the AGTI to arrive at the taxable income of Radhika.

Illustration 4:

Rajesh Patel has an adjusted gross total income (AGTI) of Rs.1,45,000. During the year he had made a total contribution of Rs1,60,000 towards the National Defence Fund from his previous savings. What is the Section 80G exemption that he can claim?

The question here is whether Rajesh Patel can take his income into negative territory and carry forward the loss. National Defence Fund is a Category 1A contribution, and hence, qualifies for 100% exemption without any outer limit. However, the condition is that the exemption under Section 80G cannot exceed the AGTI in any year, nor can such losses be carried forward. So, Rajesh Patel will only get exemption of Rs.1,45,000 and his entire income becomes tax-free. The additional contribution of Rs.15,000 will not serve any purpose from a tax perspective.

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