How to Save Tax by Donating to NGOs

Charity is a noble act. For those who do not have the means to serve society through other ways, donating to charity allows them to do their bit for society. The government too recognizes this gesture and encourages donation to noble causes by allowing a provision of tax deductions on the amount donated to charitable services. Such deductions are valid under Section 80G of the Income Tax Act of 1961.

What is Section 80G of the Income Tax Act, 1961?

Under Section 80G, taxpayers can claim deductions for contributions made to various organizations as donations. These organizations must fall under a specified category of relief funds and charitable institutions as not all charitable donations are eligible for tax deductions under section 80G. This section has been introduced by the Government of India to encourage donations to good and worthy causes as when people are provided with income tax relief, they are motivated to donate more.

This tax relief has been introduced keeping in mind that these non-profit organization’s work for the welfare of society and are not driven by profit. Under this section, the donated amount can be claimed as a deduction when the assesses income tax returns are being filed. The deductions can be claimed irrespective of the type of income being earned by individuals, partnership firms, companies, HUFs, and other types of taxpaying entities.

Validity of Deduction Under Section 80G

Under Section 12A of the Income Tax Act, non-profit organisations like charitable trusts, NGOs, religious institutions, welfare societies, etc., are entitled to tax exemptions. At the time of registration, organisations are provided with a registration number by the Income Tax Department. The donors have to ensure that the receipt of their donation contains the registration number and that the registration number is valid on the date of the donation. If the registration number is not valid on the date of donation, then the donation is will not be valid for tax deduction under Section 80G of the Income Tax Act.

Mode of Payment for Deduction Under Section 80G

For availing deduction under Section 80G of the Income Tax Act, taxpayers can make donations through cheques or demand drafts. To avail deduction on donations made in cash, the donation amount must not exceed Rs. 2,000. Taxpayers must note that contributions made in kind—in the form of food, clothing, medicines, materials, etc.—and donations over the amount of Rs. 2,000 in cash do not qualify for deduction under Section 80G. For donations over Rs. 2,000 to qualify under Section 80G, taxpayers must use modes other than cash.

How to Claim Deductions Under Section 80G

In order to claim tax deductions, certain details need to be submitted in the payer’s income tax return. These details are listed below:

• Name of the Donee
• PAN of the Donee
• Address of the Donee
• The amount of contribution with the breakup of contributions in cash and other modes
• The amount eligible for deduction

These details should be mentioned in the various tables given in the ITR:

○     Table A- Table A is for donations entitled to a 100% deduction without a qualifying limit.

○     Table B- Table B is for donations entitled to a 50% deduction without a qualifying limit.

○     Table C- Table C is for donations entitled to a 100% deduction subject to a qualifying limit.

○     Table D- Table D is for donations entitled to a 50% deduction subject to the qualifying limit.

Donations Eligible Under Table A for 100% Deduction without Qualifying Limit

• National Defence Fund set up by the Central Government.
• Prime Minister’s National Relief Fund.
• National Foundation for Communal Harmony.
• An approved university or 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 medical relief to the poor.
• National Illness Assistance Fund.
• National Blood Transfusion Council or 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 Navel 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 to provide 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 between January 26, 2001, and September 30, 2001).
• Prime Minister’s Armenia Earthquake Relief Fund.
• Africa (Public Contributions-India) Fund.
• Swachh Bharat Kosh.
• Clean Ganga Fund.
• National Fund for Control of Drug Abuse.

Donations Eligible Under Table B for 50% Deduction without Qualifying Limit

• Prime Minister’s Drought Relief Fund.
• Jawaharlal Nehru Memorial Fund.
• Indira Gandhi Memorial Trust.
• Rajiv Gandhi Foundation.

(Note that donations to Jawaharlal Nehru Memorial Fund, Indira Gandhi Memorial Trust, and Rajiv Gandhi Foundation are not eligible for deduction from FY 2023-2024 onwards.)

Donations Eligible Under Table C for 100% Deduction Subject to 10% of Adjusted Gross Total Income

• Contributions to government, local authorities, institutions, or associations for family planning initiatives.
• Companies have the option to make donations to the Indian Olympic Association or similarly recognised organisations in India to sponsor or develop infrastructure for sports and games.

Donations Eligible Under Table D for 50% Deduction Subject to 10% od Adjusted Gross Total Income

• Any additional fund or institution meeting the criteria outlined in Section 80G(5).
• Donations to the government or local authorities can be used for charitable purposes, excluding family planning promotion.
• Contributions can be made to Indian authorities dedicated to housing, urban development, or village enhancements.
• Support can be extended to corporations specified in Section 10(26BB) aimed at advancing the interests of minority communities.
• Funding is eligible for the repair or renovation of officially recognized religious sites like temples, mosques, gurudwaras, churches, and others.

For tax exemption calculation under Section 80G, adjusted gross total income is the sum total of the taxpayer’s income reduced by the aggregate of the amount deductible under Section 80C to 80U (but not 80G), income on which tax is not payable, long-term capital gains, short-term capital gains under Section 111A, and income referred to in Sections 115A, 115AB, 115AC, and 115AD.

Documentation Required for Claiming a Tax Deduction on Donations

Taxpayers seeking to claim tax deductions under Section 80G must ensure that they have a duly stamped receipt and the registration number of trust. It is mandatory for the receipt to be issued and duly stamped by the charity or trust to which the donation has been made. The receipt must include details like the name, address, donation amount, and PAN number of the trust. All eligible trusts are assigned a registration number by the Income Tax Department. Donors must ensure that the trust registration number is mentioned on the receipt.

Section 80GGA

Under Section 80GGA, tax deductions are allowed for donations made towards scientific research or rural development. This deduction is allowed to everyone except those generating income from a business or a profession. It must be noted that this deduction is not available if the taxpayer opts to pay taxes under the new tax regime in 115BAC. Similar to guidelines for donations qualifying under Section 80G, donations under Section 80G can also be made through cheques, demand drafts, or cash. Cash donations over Rs. 2,000 do not qualify for deductions. Under this section, 100% of the donated amount is eligible for deductions.

Donations eligible under Section 80GGA are listed as follows:

• Any sum paid to a research association that undertakes scientific research, or a sum paid to a college, university, or any other institution to be used for scientific research that is approved by the prescribed authority under Section 35(1)(ii).
• The sum paid to a research association that undertakes research in social science or statistical research, or sum paid to a college, university, or any other institution to be used for the same purpose, and must all be approved by the prescribed authority under Section 35(1)(iii).
• The sum paid to an approved association or institution which undertakes any programme of rural development and is approved under Section 35CCA.
• The sum paid to an approved association or institution which undertakes training of person(s) for implementing programmes of rural development.
• The sum paid to a public sector company, local authority or an approved association or institution which carries out projects or schemes approved under Section 35AC.
• The sum paid to notified Rural Development Fund.
• The sum paid to notified Fund for Afforestation.
• The sum paid to notified National Poverty Eradication Fund.

NGOs play a crucial role in addressing pressing social issues. They work constantly to make a positive impact on society by empowering individuals and communities to be a part of a change for the betterment of society. NGOs usually function on collective funds received through donations. By donating to NGOs, you can contribute towards the welfare of the society in a variety of fields. Tax deduction on such charitable donations is an added benefit and a motive for you to invest in the health of society. By availing tax deductions on donations, you can enjoy financial gains while also feeling good about doing your part for society.