Deductions under section 80G income tax act, 1961

FCS Deepak Pratap Singh , Last updated: 13 January 2019
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DEDUCTION IN RESPECT OF DONATIONS TO CERTAIN FUNDS, CHARITABLE INSTITUTIONS [SECTION 80G], INCOME TAX ACT, 1961.

The Government has done a lot to remove income disparity, poverty, illness and discrimination in India. The Government has also contributed in social welfare of the society. We are living in a welfare state, where government is by the people and for the people. In spite of acts of governments, since our independence, we are below par as compared to out world in giving our citizen as good living environment. There is a huge gap of demand and supply of money for charitable / philanthropist purposes.

The government has made provisions to give deductions the amount paid to certain approved funds/ institutions by assesses from their Gross Total Income, subject to following some specified rules and guidelines.

Section 80G of the Income Tax Act, 1961 deals with deductions and exemptions to the assessee against the amount donated by them during the previous year to specified funds/ institutions.

Following are the essential conditions;

Deduction under this section is allowed to all assessee, whether a Company, or Non-Company, whether having any income under head' Profits and Gains of Business or Profession' or not;
Donation should be some of money not in kind;
Donations should be made to specified Institutions/ funds;
For availing deduction under this section, it is obligatory on the part of assessee to produce proper proof of payment. The receipt of payment is important, otherwise deduction is not available.
Donations paid to trust which is substantially for religious purposes is not allowable [ Section 80G (5)];
No deduction under this section is allowed in respect of donation of ant sum exceeding Rs. 2000/- unless such amount has been paid through any channel other than cash. It means that maximum amount to be paid through cash is Rs. 2000/.

The deductions are available to the assessee on account of any donation made by him to specified funds/ institution during the previous year. Some donations to specified funds / institutions are qualified 100% or some 50% of the amount donated. Some deductions are applied after computation of Qualifying Amount and some are not.

A. DONATIONS MADE TO FOLLOWING ARE ELIGIBLE FOR 100% DEDUCTIONS WITHOUT ANY QUALIFYING LIMIT;

National Defense Fund set up by the Central Government
Prime Minister's National Relief Fund
National Foundation for Communal Harmony
An approved university/educational institution of National eminence
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 Illness Assistance Fund
National Blood Transfusion Council or to any State Blood Transfusion Council
National Trust for Welfare of Persons with Autism, Cerebral Palsy, Mental Retardation, and Multiple Disabilities
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 the earthquake in Gujarat
Any trust, institution or fund to which Section 80G(5C) applies for providing relief to the victims of the earthquake in Gujarat (contribution made during January 26, 2001, and September 30, 2001) or
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)

B. DONATIONS MADE TO FOLLOWING ARE ELIBIGLE FOR 50% DEDUCTION WITHOUT QUALIFYING LIMIT;

Jawaharlal Nehru Memorial Fund
Prime Minister's Drought Relief Fund
Indira Gandhi Memorial Trust
Rajiv Gandhi Foundation

C. DONATIONS ELIGIBLE FOR 100% DEDUCTION SUBJECT TO 10% ADJUSTED GROSS TOTAL INCOME (QUALIFYING) LIMIT;

Donations to the 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.

D. DONATIONS ELIGIBLE FOR 50% DEDUCTION SUBJECT TO 10% ADJUSTED GROSS TOTAL INCOME (QUALIFYING) LIMIT;

Any other fund or any institution which satisfies the 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 to in Section 10(26BB) for promoting the interest of the minority community
For repairs or renovation of any notified temple, mosque, gurudwara, church or other places.

QUALIFYING LIMIT; Where the aggregate donations made to funds / institutions referred in “C' and “D' exceeds 10% of Adjusted Gross Total Income, then all donations made to funds/ institutions referred in “C' and “D' shall be aggregated and the aggregate amount shall be limited to 10% of Adjusted Gross Total Income. [ Section 80G (4)].

ADJUSTED GROSS TOTAL INCOME; means Gross Total Income of any person as reduced by;

Long Term Capital Gains, if any, which has been included in the “Gross Total Income';
Short Term Capital Gains of nature referred to in section 111A (i.e. short-term gains on transfer of shares through recognized stock exchange, which are charged @15%);
All deductions permissible under Sections 80C to 80U excepting deductions under this Section 80G;
Some income on which income tax is not payable;
Income referred to in Sections 115A, 115AB,115AC or Section 115AD [ these are related to income of NIRs and Foreign Companies, taxable on specified rates].

QUANTUM OF DEDUCTIONS; shall be aggregate of deductions permissible under Clauses A, B, C and D referred above.

CALCULATION; [LETS CONSIDER AN EXAMPLE];

Let us take an illustration. Mr. A an individual and M/s. ABC Pvt. Ltd., a Company both give donation of Rs. 1,00,000/- to a NGO called Help age Foundation. The total income for the A.Y. year 2019-20 of both Mr. A and Ms. ABC Pvt. Ltd. is Rs. 5,00,000/-. The tax benefit would be as shown in the table:

	Mr. A	MS.ABC Pvt. Ltd.
i) Total Income for the year 2019-20	5,00,000.00	5,00,000.00
ii) Tax payable before Donation	12.500.00	150000.00
iii) Donation made to charitable organizations	1,50,000.00	150,000.00
iv) Qualifying amount for deduction (50% of donation made)	75,000.00	75,000.00
v) Amount of deduction u/s 80G (Gross Qualifying Amount subject to a maximum limit 10% of the Gross Total Income)	50,000.00	50,000.00
iv) Taxable Income after deduction	4,50,000.00	4,50,000.00
v) Tax payable after Donation	10,000.00	1,35,000.00
vi) Tax Benefit U/S 80G (ii)-(v)	2,500.00	15,000.00

Note: Education Cess & Sec. & Higher Educ. Cess has not been included in working of tax benefit.

ILLUSTRATION OF BENEFITS UNDER SECTION 80G

i) Donations to private trusts

Step 1: Find out the qualifying amount

The qualifying amount under this category will be lower of the following two amounts:

a) The amount of donation

b) 10 per cent of the gross total income as reduced by all other deductions under Chapter VI-A of the Income Tax Act such as 80C (PPF, LIC etc.), 80D (Mediclaim), 80CCC (pension schemes etc.).

For example, a taxpayer named Laxmi Arcelor as taxable salary of Rs 500,000. He has deposited Rs 70,000 in Public Provident Fund and Rs 60,000 in his company provident fund. He donates Rs 45,000 to CRY (Child Relief & You) trust. Presuming he has no other income & presuming that Donation is eligible for 50% deduction, his taxable income will be computed as under:

Gross salary	Rs 500,000
Less: Deduction under section 80C	Rs 130,000
Gross total income (before 80G)	Rs 3,70,000

After making donation to CRY, his qualifying amount for 80G will be:

Actual amount of donation	Rs 45,000
10% of Gross total income as computed above	Rs 37,000 whichever is lower

Since 37,000 is lower, the qualifying amount will be Rs 37,000

Step 2: Find out actual deduction

The next question that arises is how much would be the actual deduction? In the case of donations to private trusts, the actual amount of donation would be 50 per cent of the qualifying amount.

Therefore, in the example given above, since the donation is made to a private trust, the deduction will be 50 per cent of the qualifying amount i.e. 50 per cent of Rs 37,000 = Rs 18,500.

So,

Gross total income (Before 80G)	Rs 370,000
Less: deduction under section 80G	Rs 18,500
Total income (taxable income)	Rs 351,500

Step 3: Check upper limit

Finally, the deduction under section 80G cannot exceed your taxable income. For example, if your income before deduction is Rs 3 lakh and if you have given donation of Rs 5 lakh to the Prime Minister's National Relief Fund, please do not expect to claim a loss of Rs 2 lakhs. Your income will be NIL (Rs 3 lakh - Rs 3 lakh). The deduction will be restricted to the amount of your income.

ii) Donations to trusts/funds set up by the Government

In this category, the entire amount donated i.e. 100 per cent of the donation amount is eligible for deduction. There is a long list of 21 funds/institutions/purposes for which donations given would qualify for 100 per cent eligibility. Notable among this list are:

- The National Defense Fund
- The Prime Minister's National Relief Fund
- Any fund set up by the State Government of Gujarat for earthquake relief

The funds that figure in this long list are all set up by the Government. Private Trusts do not figure in this list.

Thus, in this category of donations, the ceiling of 10 per cent of the gross total income as reduced by all other deductions under Chapter VI-A of the Income Tax Act does not apply.

In the above example, if instead of donating to CRY, had the donation been given to say, The Prime Minister's National Relief Fund, then the calculations would have different as shown below: