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Ten things one should know about tax benefit on donations

Mrs.Malini has donated Rs.20,000 to R M Trust. She wants to know whether the entire amount can be reduced from the Income tax payable OR whether the entire amount can be reduced from her taxable income. The answer is, both are wrong. Through this article we have made a modest effort to explain the broader aspects of tax benefits on donations. Hope this helps.

  1. Payment – Donation given in cheque, online transfer or demand draft is eligible for tax benefit. Donation given in cash, up to Rs.10,000 is allowed.

  1. Registration – The charitable trust for which you make donations should have registration u/s 80G of Income Tax Act. The Trust has to mention (or print) the registration number on the receipt. It is also advisable to collect a copy of the registration certificate. Any certificate which was valid till 1st Oct 2010, will continue to be valid. If you are making donations to trust which are not registered u/s 80G do not qualify for tax benefits.

  1. Foreign Trusts and Political parties – Donations made to foreign trusts do not qualify for any tax benefits.

  1. Eligible Tax payers – all taxpayers be it Individuals, companies or firms, Non Resident Indians (NRI) are eligible to get tax benefit.

  1. Maximum allowable deduction– 50% of the aggregate of the donations made or up to 10% of adjusted Gross Total Income is eligible for tax benefits. In case of donations made to Funds as Prime Minister’s National relief fund, National Defence Fund etc 100% of the sum paid is eligible for tax benefits.

  1. Tax Claim – If you are a salaried employee, your employer is not allowed to consider the tax benefits towards donation given to private trusts. So, while filing Income Tax return, you have to claim the deductions u/s 80G.

  1. Employee Certificate – Sometimes, the employer makes lump sum donation to the national calamity fund or similar funds and then deducts the amount from the salary of each employee. In such cases, you can claim tax benefit based on the certificate from the Employer stating that the contribution is made by them and recovered from the salary.

  1. Receipt – As a proof of making the payment, you have to collect a valid stamped receipt from the trust. The receipt must contain information such as 80G registration Number, PAN and address of the trust.

  1. Paid in kind – Donations given in kind such as food, blankets, books etc are not eligible for tax benefits.

10. Direct charity –Donations given directly to the school children or any other beneficiaries are not eligible for tax benefits. One has to give donations to registered (under income tax Act) charitable organizations.

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