Of charity and tax deduction

March is one month when people get far more altruistic than usual. That is, the quantum of donations made in that particular month shoots up.

However, a cynic would say that these donations are motivated by the tax breaks accompanying them. Well, we are tackling this subject a whole month later. But there would be a March 2008, March 2009, March 2010...

The section of the Income Tax Act under which such benefits can be claimed is Section 80G. The list will test the comprehension power of a layman. However, let us try and simplify it.

The first point to note is that donations under section 80G are treated as a deduction from your gross total income. Also, the tax authorities do not believe in the adage that it is the thought that counts. So you actually need to spend rather than pray to get the benefits. Some of the other salient points include:

This deduction is available to all assesses

• Donations in kind are not eligible
• Donations may be made by cash or cheque
• The donation should be made only to specified institutions.  Also, proper proof of payment must be provided.

Now here are some complexities that queer the pitch

In some cases the deduction is applied after applying a qualifying limit while in others there is no such limit. In some cases, deduction on the entire donation amount can be claimed, while in other cases only 50 per cent of the donation is eligible.

[A] Some donations that are eligible 100 per cent deduction list without any limit include

• National Defence Fund of the central government;
• Prime Minister's National Relief Fund;
• National Foundation for Communal Harmony;
• Maharashtra Chief Minister's Earthquake Relief Fund

[B]Some donations that are eligible for 50 per cent deduction without any limit include:

• Jawaharlal Nehru Memorial Fund
• Prime Minister's Drought Relief Fund
• Rajiv Gandhi Foundation

[C] Some donations that are eligible for 100 per cent deduction subject to a qualifying limit include:

• Donation to government or any approved local authority to be utilised for promoting family planning
• Any sum paid by the assessee, being a company to the Indian Olympic Association

[D] Some donations made that are eligible for 50 per cent deduction subject to a qualifying limit include:

• Donation to government or any approved local authority to be utilised for any charitable purpose other than promoting family planning
• Donation made to any central government notified place of worship for renovation or repair of such place

For applying the qualifying limit, all aggregate donations made under [C] and [D] shall be aggregated and the aggregate amount shall be limited to 10 per cent of adjusted gross total income.

In short, be vigilant about the notification status of the recipient receiving the donation.   Also, be  very particular about the receipt that shouldstate that the said donation is eligible for deduction under section 80G. Finally, while donations are traditionally made from the heart, using you head also goes a long way in reducing your tax burden.

Adjusted gross total income is computed as: gross total income

Less: Long-term capital gains, if any, which have been included in the GTI

Less: All deductions permissible under section 80C to 80U (without including Section 80G)

Less: Such income on which income tax is not payable

Less: Certain incomes referred to under section 115 pertaining to NRIs.

The writer is vice president, Parag Parikh Financial Advisory Services