Section 80G Deductions: Comprehensive Guide to Section 80G of Income Tax Act

Taxpayers in India are heavily encouraged to participate in providing donations to charitable institutions. However, such donations are not just beneficial for such charitable institutions, but also significantly help reduce Income tax burdens on the donors. This is a result of Section 80g of the Income Tax Act.

Section 80g of the Income Tax Act provides a legitimate and efficacious way for taxpayers to avail tax relief in money donated to charitable institutions. Having said that, to avail deductions under Section 80G of the Income Tax Act, one needs to be well-acquainted with its detailed process, eligibility criteria, documentation involved, importance of 80G Receipt, 80G certificate&80G Registration, etc. This article will delve deep into this topic and will help readers understand how deduction under 80G fits under the broader scheme of the income tax exemptions in India.

What is Section 80G of the Income Tax Act?

Section 80G was introduced by the government to encourage donations to government funds and charitable institutions by offering certain Income Tax deductions to donors. Hence, the basic objective of Section 80G of the Income Tax Act is to promote philanthropy in the country. Section 80G allows donors to deduct the donated amount from their gross total income, thereby reducing their tax liability. These deductions under 80G can be availed by any taxpayer, including Individuals, Companies, Partnerships, HUFs, Firms, NRIs, etc, making eligible donations.

Eligibility Criteria for Claiming Deductions Under Section 80G of the Income Tax Act

Before claiming the deductions under 80G, one must know about the eligibility criteria to avail benefits enshrined therein. Any tax taxpayer, including Individuals, Companies, Partnerships, HUFs, Firms, NRIs, etc, may avail the benefits of Section 80G of the Income Tax Act when the following conditions are met:

1. Kind of Donation: Non-financial donations like food, clothing, etc., cannot be made the basis to avail deductions under 80G. Benefits of deductions under 80G can only be availed in case of monetary or financial donations.
2. Mode of Payment: The mode of payment of donations to avail deductions under 80G shall be mandatorily made via cheque, draft, or digital payment. Cash donations upward of Rs. 2000/- are not eligible for deductions under 80G.
3. Eligible Institutions: To avail deductions under 80G, donations must be made only and exclusively to institutions or funds that have 80G registration or have been explicitly approved by the Income Tax Department. Examples of such institutions have been provided in the following paragraphs.
4. Adequate Documentation: A donor must possess a valid 80G Receipt to avail deductions under 80G. Such 80G Receipt provides a confirmation to the Tax Department that a donation was made by an eligible person, in an eligible manner, to an eligible organisation.

Importance of 80G Receipt

An 80G Receipt is a crucial document proving that the donation so made qualifies the eligibility criteria mentioned under Section 80G of the Income Tax Act. Section 80G of the Income Tax Act is extremely precise regarding the conditions under which benefits of deductions under 80G can be claimed. Here, 80G Receipt acts as an accreditation, highlighting that the donation was as per the terms, conditions, and specifications enshrined under Section 80G of the Income Tax Act.

An 80G Receipt contains information like the name, address, PAN card details &80G registration number of the Trust /Institution; name, address & PAN Card Details of the Donor; mode and amount of money donated, etc.

Without a valid 80G Receipt, a taxpayer cannot claim any deductions under 80G. Hence, the importance of 80G receipt shall not be underestimated.

Types of Deductions under Section 80G of the Income Tax Act

The deductions under Section 80G of the Income Tax Act are not uniformly applicable across all trusts or institutions. Dedication amount varies based on the type of institution. Hence, deductions under 80G can be broadly classified into 2 main categories:

1. 100% or 50% Deduction Without Limit: Section 80G(1) read with section 80G(2) includes the following trusts, funds, and institutions in this category:
   • The National Defence Fund
   • The PM National Relief Fund / PM CARES Fund
   • The Swachh Bharat Kosh (excluding CSR expenses)
   • The Clean Ganga Fund
   • The National Children’s Fund
   • The National Illness Assistance Fund
   • The National Cultural Fund
   • Prime Minister’s Drought Relief Fund
   • Jawaharlal Nehru Memorial Fund
   • Indira Gandhi Memorial Trust, etc
2. 100% or 50% Deduction Subject to 10% of Adjusted Gross Total Income: Deductions for donations given to institutions or funds falling under this category in only to a maximum of 10% of the Adjusted Gross Total Income. The formula to calculate Adjusted Gross Total Income has been provided herewith:
   GROSS TOTAL INCOME
   (–) exempted income
   (–) deductions under other sections
   (–) long-term capital gains
   (–) short-term capital gains under section 111A
   = ADJUSTED GROSS TOTAL INCOME
    

Section 80G(4) includes the following trusts, funds, and institutions in this category:

• Donations to approved charitable institutions (not in the above categories)
• Donations to local authorities for charitable purposes
• Renovation of notified religious places
• Contributions for sports development (by companies)

Link to Section 80G Deduction Calculator from the Income Tax Department: https://incometaxindia.gov.in/Pages/tools/deduction-under-section-80G-80GGC-tool.aspx

Eligibility of Institutions under Section 80G of the Income Tax Act

Section 80G(5) of the Income Tax Act provides the criteria for eligible Institutions. Section 80G(5) mandates that any institution to be granted 80G Registration must meet the following criteria:

1. The institution must be established in India
2. The institution must be established for Charitable Purposes
3. The institution’s income must not be taxable under Section 11, 12, 10(23AA), or 10(23C) of the Income Tax Act.
4. If the Institution has any business income, then it must
   • Maintain separate books of accounts
   • Do not use donations for business
   • Must issue a certificate confirming the fulfillment of the above criteria

How to apply for 80G Registration?

For any organisation, institution, or trust to accept tax-deductible donations, it must possess an 80G Registration. Any organisation may apply to obtain its 80G Registration by following the process:

• File Form 10A on the Income Tax Department’s online portal
• Submit requisite details and documents like PAN card, Trust Deed, financial assessment orders, etc.
• The income tax department may call for additional information or documents.
• Once satisfied, the Income Tax Department will grant an 80G Certificate indicating completion of the 80G Registration Process.

Once an organisation, institution, or trust has duly completed its 80G Registration Process and has been granted 80G Certification, it may accept tax-deductible donations.

Who can claim Deductions under 80G?

Any of the following taxable entities may claim deductions under 80G:

• Individual
• Firms
• Companies
• Partnerships
• Hindu Undivided Families
• Non-Resident Indians (NRIs)
• Any other assesses

Irrespective of one’s income level, if an individual or organisation contributes to an 80G Registered Institution, 80G Deductions may be claimed.

How to claim Deductions under Section 80G of the Income Tax Act?

The following process must be followed to effectively claim Deductions under Section 80G of the Income Tax Act:

• Ensure that donations are made to an Organisation with a valid 80G Registration.
• Make sure to collect an 80G Receipt with proper details
• Ensure to add details of your donations while filing your ITR Returns.
• Upload the requisite documents while filing your ITR Returns

Section 80G of the Income Tax Act vs. Other Income Tax Exemptions in India

There are several income tax exemptions in India, inter alia, Agriculture Income, HRA, LTA, Gratuity, Scholarship Income, etc., i.e., involuntary acts. Section 80G of the Income Tax Act, on the other hand, provides exemptions on its voluntary contributions to Charitable Institutions. This makes Section 80G of the Income Tax Act a great tool for planning one’s income tax strategically.

Benefits of Donating Under Section 80G of the Income Tax Act

Making donations under Section 80G of the Income Tax Act can prove to be extremely beneficial for people. Section 80G of the Income Tax Act provides a host of benefits, namely:

1. Tax Savings: Section 80G allows for a deduction to be made in Taxable income, which significantly reduces Income Tax liability.
2. Social Impact: The societal impact of Section 80G is the most prominent as it directly promotes philanthropy, which increases contributions to NGOs, education, healthcare, and disaster relief etc.
3. Reputation: Donating money was earlier an obligation for corporates as a part of their CSR, however, Section 80G of the Income Tax Act has made it easier for corporates to help build their reputation.

Common Mistakes to Avoid

One must make sure to avoid the following mistakes while trying to avail deductions under 80G:

1. Donating to unregistered organizations
2. Making cash donations over Rs. 2,000.
3. Not collecting a valid 80G receipt.
4. Not checking and verifying the 80G Registration status or 80G certificate of organisation before donating.

By avoiding these mistakes, one ensures easier and effective settlement of claims under Section 80G of the Income Tax Act.

Conclusion

Just like other income tax exemptions in India, Section 80G of the Income Tax Act can also prove to be extremely beneficial for individuals or entities, given that they effectively follow the procedures. This includes checking eligibility, collecting 80G receipts, checking 80G Registration or 80G Certificate of organisations, and comprehensively entering donation details while filing Income Tax Returns. All this will ensure that the good that you are doing for society by donating money, benefits you too.

All this will ensure that the good you are doing for society by donating money benefits you too. Platforms like TMWala make this process even easier by helping you discover verified NGOs, manage your donation records, and stay compliant with 80G requirements—so your generosity is both impactful and tax-efficient.