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All You Need To Know About
Tax Exemption On Donation To NGO
Do you know that a Non-Government Organisation (NGO) donation is exempted from tax in India? Yes, you might know it already. But let us drive you through the nitty gritty of tax exemption on donations to NGOs in this article. The knowledge will help you make the right decision in choosing the institution for your charity.
Section 80G - The Legal Sanction
The Income Tax of India contains Section 80G, which provides the legal sanction for tax exemption on donations to NGOs. You can claim exemption while filing your income tax returns and submitting an 80G certificate. Only NGOs registered with the Income Tax Department can issue 80G certificates to the donors.
The Reason Behind 80G
To promote charitable activities in the country, the government of India introduced section 80G in the Income Tax Act. The government believes the tax exemption will act as an incentive and motivate the donors to support activities that help the society.
Who Can Avail Exemption?
Under Section 80G, donations to NGOs from the following category of company and non-company entities are eligible to claim tax exemption.
● Individuals
● Firms
● Companies
● Non-Resident Indians (NRI)
● Hindu Undivided Families (HUF)
● Any other person or organisation
How Much Tax Exemption Available Under 80G?
Deductions under 80G fall under two categories:
Donations made to funds
Under 80G, you can claim 100% deductions for donations made to certain funds. These funds are
- The National Defence Fund
- The Prime Minister’s National Relief Fund
- The National Foundation for Communal Harmony
- National/State Blood Transfusion Fund
Donations made to NGOs
For some funds, the IT Act allows 50% deductions without any qualifying limit. These funds include
- Jawaharlal Nehru Memorial Fund
- Indira Gandhi Memorial Trust
- Rajiv Gandhi Foundation
- Prime Minister’s Drought Relief Fund
For donations to NGOs, the tax exemption claim is 50% with a qualifying limit. The qualifying limit is 10% of the adjusted gross total income (AGTI).
For instance, if you donated an amount of Rs. 10000/- to an NGO registered with the IT department, you can claim 50%, that is Rs. 5000/-, as tax exemption while filing your tax returns.
What Kind of Donations to NGOs Are Eligible for Exemption?
The law allows donation to ngo tax exemption India only for monetary transactions. In-kind donations like products are ineligible for exemption. The payment modes include cash, cheque, demand drafts and electronic fund transfer. According to Section 80G, cash donations exceeding Rs. 2000 are ineligible for tax exemption. Also, donors must ensure that they take the donation receipt from the NGO to claim a deduction exemption. The receipt must contain the authorised stamp of the NGO, amount and payment date details. Any transaction that occurs outside India is not considered for tax exemption. Also, individuals or entities cannot claim tax exemption on donations made to foreign trusts and political parties.
Benefits of NGO Donation Tax Exemption
Donating to NGOs has certain tax benefits for individuals and entities. Some of them are:
Tax Savings on CSR Activities
Corporate Social Responsibility (CSR) is a mandatory exercise under the Companies Act, 2013. Companies that fall under a certain threshold in the Act must spend 2% of their profits on CSR activities. One of the activities is donating to NGOs.Under section 80G, companies can claim tax exemption on donations to NGOs. The claim can be only up to 10% of a company’s net profits. Also, only donations made to NGOs registered under Section 12A of the IT Act are eligible for tax exemptions.
Helps Increase Donor Base
According to Bain & Company, retail giving, donations for compelling narratives, has grown by 12% in FY 2023 amounting to Rs. 37,000 crores in India. The growth is predominantly due to donations to NGOs Individuals or professionals who form the majority of retail givers take advantage of NGO donation tax exemption. They use the tax exemption to plan their finances and support various causes to uplift society. Thus, the provision of tax exemption on donations to NGOs is increasing the donor base for the social sector.
Tread Carefully
Doing charity is a noble act and you can benefit from it in the form of savings on tax liability. But tread carefully on where you are putting your charity. Ensure that the NGO you are donating to is genuine and has a valid Section 80G certification.