The IT Department of India has maintained various provisions for common men to reduce their tax liabilities for the A.Y. 2017-18 through deduction under Section 80.
This section is further divided into sub-sections which offers different scopes of claiming deductions.
In this article, we will be discussing about deduction 80G and how to avail benefits from the same.
What is Deduction U/s 80G?
For a common man, Section 80G is an opportunity to claim deduction by way of making donations and charity. A person who has made donations or charity in the AY 2017-18, can claim the same as a deduction while filing his IT return. This section is applicable to individuals, firms and even companies. However, it should be noted that deduction is only available under cases where donation/ charity has been made to an organization which has Government recognition.
Let’s take an example to make things clear. Suppose Mr. Ramesh has made a donation to APSWDP for INR 50, 000 in the AY 2017-18. Now, he can claim the same amount as deduction because APSWDP is a recognized organization by Government. Issues such as helping a poor person, donating to beggar, etc., are not under the purview of this section.
How to Claim Deduction Under Section 80G?
Deduction under Section 80G is computed on the basis of gross total income. As a tax payer, first your gross salary is taken and then deduction in respect of PPF (Public Provident Fund) and CPF (Company Provident Fund) is made. The end result is Gross Total Income. To illustrate:
Gross Income – Contributions to PFF and CPF = Gross Total Income.
Now, deduction under Section 80G is available on the amount which is lower of the two mentioned below:
- Donated Amount, or
- 10% of Gross Total Income
The lower of the two amount will qualify as deduction. However, there is an additional clause attached to the whole scenario. Various donation have different exemption limit. Some donations may have 100% deductions, whereas some have 50% deductions. Donation to private organizations mainly offer 50% deductions. Hence, the amount qualified as deduction will be reduced to half and will be applied as a deduction.
An example will make things crystal clear. Mr. Roshan has a gross income of INR 1, 00, 000. He has made contributions to PFF and CPF with INR 10, 000 and 5, 000 respectively. He has also made a donation to a private charitable organization worth INR 20, 000. So, what deductions can he available under Section 80G?
In this case, we will first compute Gross Total Income.
INR 1, 00, 000 – (10, 000 + 5, 000) = INR 85, 000
Now, we need to check the second condition, where we will compare donation amount and 10% of the gross total income. In the present case, donation is INR 20, 000 and 10% of the Gross income is INR 8, 500. Therefore, INR 8, 500 will qualify as the amount for deduction under 80G as it is lower.
Now the final step to get deduction 80G is here– only 50% of INR 8, 500 will be available as deduction because as per IT Act, a tax payer can get only 50% deduction while making donation in a private organization. If the organization belonged to the government, then 100% deductions would have been available.
Eligibility for Deduction under Section 80G
The IT Department of India demands proof for donations. Therefore, there are two things which should keep in mind-
- Receipt of Donation– Every Government recognized trust issues a receipt for donation received. As a tax payer, you are required to show those receipts to the IT Department at the time of claiming deduction under Section 80G. Failure to do so, will result into cancellation of deduction.
- Donations in Cash/ Cheque is only acknowledged– Donation in kind/favour is not acknowledged by the IT Department. For a tax payer, donations should be either made in Cash or Cheque, any other does not qualifies for deduction.
The scope of Section 80G is an important area of claiming deduction. As a tax payer, you can immediately take advantage of this section without getting into complexities of investments.
Section 80G Updates
- Updated on 04-08-2017: Deduction u/s 80G cannot be allowed respect of donations by way of clothes sent to the PMNRF, being in kind and not in cash, cheque or draft (Nahar Spinning Mills Ltd. vs Commission or Income-Tax) 2017(8) TMI 125 – Punjab and Haryana High Court – Download or View Online