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If the amount donated exceeds 10% of the adjusted gross total income, then the amount over such 10% shall not be eligible for deduction
The Covid-19 pandemic has shown us some very hard days. The challenges increased tenfold during the second wave of the pandemic that hit India in March this year. This time the death toll witnessed a sharp increase. Several celebrities alongside the government actively tried to arrange funds through donations and crowdfunding to help those in need. People came together to arrange resources and donated to the PM CARES funds and other NGOs to save lives during this tough time.
Under Section 80G of the Income Tax Act, the government provides some tax benefits to donors for donations made to various specified funds. If a taxpayer has made donations to NGOs, he is eligible to claim deduction under Section 80G of the Income-tax Act to the extent of 50% to 100% of the donation made. This deduction is available to all assessee be it resident or non-resident.
“The donation to certain funds like National Defence Fund, PM National Relief Fund and PM CARES FUND etc are eligible for 100% or 50% deduction without any maximum limit. For other approved NGOs or funds, the deduction is allowable for 100% or 50% of the amount donated subject to a maximum of 10% of the adjusted gross total income. If the amount donated exceeds 10% of the adjusted gross total income, then the amount over such 10% shall not be eligible for deduction,” Tarun Kumar, Chartered Accountant & Direct tax leader – Coherent Advisors, said.
The tax deduction is allowed for donations made in cash as well as cheque. However, the donations made in cash are allowable for a maximum of Rs. 2000. Although there is no such bar for NGOs to receive cash above Rs. 2000, the restriction imposed is only on donors i.e. the deduction of donation shall not be allowed if the donation is made for an amount exceeding Rs. 2,000 in cash.
The donations made in kind are not eligible for deduction. Therefore, only the donations made in terms of money are eligible to avail for deduction.
“The donation made to NGO is allowed as deduction only if such NGO is either specified in Section 80G or notified by the tax authorities. Therefore, if any amount is paid as help to friends, family or unapproved NGO then that is not eligible for tax deduction. The donor should also ensure to get a donation receipt from the NGO which should contain the details like name of, address and PAN of donor. It should also have the 80G approval number of NGO, date of donation and mode of donation,” Kumar explained.
From the Financial Year (FY) 2021-22 onwards, the donor shall be able to claim deduction under Section 80G based on information relating to donation submitted by NGO in Form No. 10BD to the income-tax authorities.
The NGO is also required to issue a certificate in Form No. 10BE to the donor specifying the amount of donation received during the year. This certificate is required to be issued by May 31st of the next year in which donation is received by NGO. This certificate shall act as a piece of evidence to substantiate the deduction claimed by the donor under Section 80G.
Meanwhile, Kumar pointed the tax benefit on donations isn’t available under the new tax regime. Therefore, only those taxpayers availing the older regime will be eligible to enjoy the benefits here.