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NGOs with 12A/80G certifications:
Section 80G of the Income Tax Act, 1961, is a provision that encourages charitable donations by offering tax deductions to donors. When individuals or businesses donate to eligible NGOs or charitable institutions in India, they can claim deductions on their taxable income, thereby reducing the amount of tax they owe. This incentive not only benefits donors financially but also support a wide range of charitable activities across the country.
What is a Tax Exemption, and How Does it Work?
A tax exemption allows individuals or organizations to reduce or eliminate their tax liability on certain income or activities. In the context of charitable donations, this means that when you donate to an approved charitable organization, you can lower your taxable income, which can result in a lower tax bill. Section 80G specifically provides deductions for donations made to qualified NGOs and charitable trusts, provided they are approved by the Income Tax Department.
Who Qualifies for the Deduction?
To claim a tax deduction under Section 80G, the donation must be made to an NGO or charitable trust that is registered and approved under this section. The organization must operate in India and focus on charitable activities rather than religious purposes. It's important to note that donations to religious institutions do not qualify for deductions under Section 80G. The purpose of this provision is to support entities that work towards social, economic, and welfare development within the country.
How Much Can You Deduct?
The amount of the deduction under Section 80G can vary based on the type of organization and the nature of the donation:
* 100% Deduction: Certain funds and organizations are eligible for a full deduction of the donated amount.
* 50% Deduction: Some donations qualify for a 50% deduction.
* Subject to Qualifying Limits: For some donations, the deduction is subject to a qualifying limit, which is 10% of the adjusted gross total income of the donor.
To claim the deduction, donors must obtain a receipt from the organization that includes details like the donor's name, the donated amount, and the registration number of the trust, along with its validity period.
Requirements for Claiming the Deduction
To claim the deduction, the donor must:
* Obtain a receipt from the charitable organization containing the donor's name, donated amount, PAN of the Donee’s, address of the Donee’s, and registration number of the trust along with its validity period.
* Submit the relevant details in their Income Tax Return (ITR).
Example of Tax Deduction Calculation Under Section 80G
Let's consider Vimala Sharma, an Indian taxpayer, to illustrate the calculation of a tax deduction under Section 80G:
Vimala’s Financial Details:
* Gross Salary: ₹5,00,000
* Deposits in Public Provident Fund: ₹40,000
* Contribution to Company’s Provident Fund: ₹40,000
* Donation to EGIF (FOR SOCIAL CAUSE) NGO: ₹45,000
1. Step-by-Step Calculation:
* Gross Total Income Calculation:
- Gross Salary: ₹5,00,000
- Less: Deduction under Section 80C (PPF + Company PF): ₹40,000 + ₹40,000 = ₹80,000
- Gross Total Income (before 80G): ₹5,00,000 - ₹80,000 = ₹4,20,000
* Determine Adjusted Gross Total Income:
- Since there are no other deductions or incomes mentioned, the adjusted gross total income remains ₹4,20,000.
* Calculate Qualifying Limit:
- The qualifying limit for deductions under Category 3 and 4 donations is 10% of the adjusted gross total income.
- 10% of Adjusted Gross Total Income: 10% of ₹4,20,000 = ₹42,000
* Actual Donation vs. Qualifying Limit:
- Actual Donation to EGIF: ₹45,000
- Qualifying Limit: ₹42,000 (as calculated above)
- Since ₹42,000 is less than the actual donation, the qualifying amount for the deduction will be ₹42,000
* Calculate Deductible Amount:
- Donations to NGO like EGIF qualify for a 50% deduction.
- Deduction: 50% of ₹42,000 = ₹21,000
* Final Taxable Income Calculation:
- Gross Total Income (before 80G): ₹4,20,000
- Less: Deduction under Section 80G: ₹21,000
- Total Taxable Income: ₹4,20,000 - ₹21,000 = ₹3,99,000
2.Details Required to Claim Section 80G Deduction:
* Full Name of Donee’s Institution: EGIF
* Amount of Contribution: ₹45,000
* PAN Number of Donee’s: (Example: ABCDE1234F)
* Address of Donee’s: (Example: EGIF, Noida, Uttar Pradesh)
Required Documents:
* Donation receipt with the registration number of the trust.
* Photocopy of the 80G certificate from the Donee’s organization.
In this example, by donating ₹45,000 to EGIF, Vimala Sharma is eligible to reduce her taxable income by ₹21,000 under Section 80G. This deduction not only lowers her tax liability but also supports charitable causes. Utilizing Section 80G can thus provide significant financial relief while promoting philanthropic efforts. By understanding and utilizing these provisions, taxpayers can benefit from reduced taxes while supporting meaningful causes.