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April 20, 2023

What is Section 80G, and how may it reduce your tax burden?

What is Section 80G, and how may it reduce your tax burden?

Donating money to approved charity organisations qualifies as a tax deduction under Section 80G of the Income Tax Act of 1961. Taxpayers who make donations to recognised institutions and groups are entitled to deductions that range from 50% to 100% of the total sum given. To use these deductions, however, certain restrictions and requirements must be met. Let’s look at Section 80G’s numerous subtleties and how it might aid in tax savings in more depth.

Who is eligible to use Section 80G as a deduction?
Under Section 80G, any taxpayer—resident or nonresident—who has given money to the specified funds, institutions, or associations is qualified to deduct that amount from their gross income before taxation. It’s crucial to remember that only taxpayers who choose the previous tax system are eligible to claim this deduction. The benefit of this deduction is not available to taxpayers under the new tax system.

How much of a deduction is allowed by Section 80G?
The following deductions are permitted under this provision: a) 100% deduction with no upper limit
(a) A 50% deduction with no upper bound
(c) A maximum deduction of 100% is permitted.
(d) A 50% deduction up to a certain amount.

The first step in requesting a deduction is to confirm which category the fund or charity organisation falls under. This will aid in determining whether there is a maximum or qualifying limit as well as the deduction proportion (100% or 50%).

100% or 50% of payments to certain universities are eligible without any further conditions. In some cases, you must first ascertain the highest limit that qualifies for a deduction, though. Any excess beyond the 10% limit in the total amount contributed to those designated funds or institutes will not be eligible for a tax deduction if your adjusted gross total income (GTI) is more than that amount.

After subtracting the following amounts from your gross total income, the adjusted gross total income is calculated:

(a) The amount exempt from taxation under Sections 80C to 80U (other than Section 80G).
(b) Profit-sharing in an Association of Persons (AOP) that qualifies for a Section 86 refund

(c) Gains from long-term investments
(d) Short-term capital gain from securities listed in Section 111A
Any revenue mentioned in Sections 115A, 115AB, 115AC, 115ACA, 115AD, and 115D is included in this category.

Here is an example. Let’s assume your gross total income for the year is Rs. 10 lakh. You have made donations of Rs. 90,000 to NGOs, which are eligible for a 50% deduction subject to a qualifying limit of 10%. Additionally, you have claimed deductions of Rs. 1.5 lakh under Section 80C and earned short-term capital gains of Rs. 1 lakh from the sale of equity shares.

You must first determine your adjusted gross total income in order to determine the maximum amount permitted under Section 80G. Your gross total income (GTI) is 10 lakh minus 1.5 lakh minus 1 lakh, or Rs. 7.5 lakh, after Section 80C deductions and Section 111A short-term capital gains.

The qualifying maximum for gifts under Section 80G, which is 10% of your adjusted gross income, must then be determined. The qualifying amount in this situation is Rs. 75,000, or 10% of Rs. 7.5 lakh.

The most that can be deducted in accordance with Section 80G is 50% of the lower of the following amounts: a) the amount contributed (i.e., Rs. 90,000); b) the qualifying limit (i.e., Rs. 75,000). In this instance, the qualifying limit of Rs. 75,000 is the smaller amount. Therefore, 50% of Rs. 75,000, or Rs. 37,500, is the highest deduction permitted under Section 80G.

As a result, you may deduct Rs. 37,500 from your taxable income for gifts you made to qualifying NGOs under Section 80G.

What kind of gift should be made in order to qualify for a deduction?

For donations given in cash, check, or electronic form, you may claim a deduction. However, gifts in cash that total more than Rs 2,000 are not tax deductible. It’s also vital to remember that this clause does not allow for the deduction of gifts given in kind.

Justification for the deduction
A person must give to a fund or organisation that satisfies the requirements outlined in Section 80G(5) of the Income Tax Act in order to claim a tax deduction. One requirement is that the receiver submit a gift statement to the Income-tax Department and give the donor a Form 10BE certificate detailing the amount contributed over the course of the year.

To prove the deduction being claimed while submitting an ITR, a certificate in Form 10BE is needed. Only if the fund or institution informs the income-tax department of the donation details will the deduction be permitted.

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