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WHILE making donations to a fund or a charity working for a cause can bring you inner happiness, there is something more to it. The income tax department recognises donations made by individuals towards a good cause and allows tax benefits for them.
Tax exemptions: As per Section 80G of the Income-Tax Act, 1961 (the Act), donations made to these funds and charitable institutions are eligible for deduction from the total taxable income of an individual, subject to conditions pre scribed in the Act.
These donations, which are deductible from taxable income, could be exempt for either 50 per cent or 100 per cent of the amount, depending on the fund or charitable institution to which the donations are made. Donations that are eligible for 100 per cent deduction include the Prime Minister's National Relief Fund and the National Defence Fund, to name a few. Donations eligible for 50 per cent deduction include the Prime Minister's Drought Relief Fund, National Children's Fund and any other registered funds or charitable institutions.
After making the donation, the fund or charitable institution will provide a receipt to the donor on which its eligibility under section 80G is mentioned in addition to its name and address, the name of the donor and the amount donated. This receipt serves as proof of the donation. Also, the receipt issued by the fund or charitable institution mentions the registration number issued by the income tax department under Section 80G and also the validity period of the registration.
The receipt is not required to be attached while filing an income tax re turn, where the individual has claimed a deduction. Nevertheless, the receipt should be kept safely in case of any future enquiry by the income tax authorities. Conditions for tax deduction: It is to be noted that these deductions are available for donations made in cash or cheque only. Donations made in kind (like providing food, clothes, blankets and medicines, among others) are not eligible for any deduction.
Also, donations that are made to foreign trusts do not qualify for deduction under section 80G.
Although, there is no restriction or upper limit for these donations, the tax benefit will be restricted to a maximum of 10 per cent of the gross total income of an individual, as specified under the Act.
In case of donations made by salaried individuals, which are eligible for deduction under Section 80G, those donations are not tax deductible from their salary by their employers while computing tax deducted at source (TDS). The tax benefit on such donations will have to be claimed by the individual on his income tax return. However, in cases, where the salaried individual has made donations to the Prime Minister's National Relief Fund, the Chief Minister's relief Fund, the Chief Minister's Relief Fund or the Lieutenant Governor's Relief Fund through his employer, in which the deduction available is 100 per cent, the employer has to consider the deduction for such donations while computing TDS.
Besides making a donation to funds or charitable institutions already covered under section 80G of the Act, donations made towards scientific research, rural development and political parties are also eligible for tax deductions and are separately covered under the Act.
Therefore, philanthropy may not only benefit others but also the donor, if the beneficial tax provisions are kept in mind.
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