TAX EXEMPTION ON DONATIONS UNDER SECTION 80G

Voluntary help, either in terms of money or kind, towards needy people is known as charity. A way for people to give back to society, it not only makes you feel happy from within, but when you donate, you can also save some tax.

Today, there are various non-governmental organisations (NGOs) and other non-profit bodies that collectively work towards conducting charitable activities that help them raise funds or provide non-monetary charity for people in need. Such institutions have put forth their best efforts to further play a significant role in promoting the various economic development and social welfare objectives that the Indian government has initiated. The outreach and localised approach that NGOs and other non-profit entities follow has allowed for the identification of the needy and helps ensure that a supporting hand is provided to them. This is one of the key reasons why the Government of India offers tax incentives and exemptions to NGOs and charitable organisations, with the exemptions under Section 80G of the Income Tax Act being the most significant ones.

What is Tax Exemption?

The reduction or removal of a liability to make a mandatory payment that is otherwise imposed by the ruling power on a property, individual, income, and so on, is known as tax exemption. Having a tax-exempt status may also provide relief from other taxes, offer reduced rates, or tax only on a portion of certain items. Exemption of tax for donations to charitable trusts and NGOs, from property and income taxes for veterans, cross-border scenarios, and so on, are some examples of tax exemption. An important thing that organisations need to keep in mind is that registrations are granted under Section 12A of the Income Tax Act. However, that doesn’t give direct approval for an 80G deduction. This is because Section 80G tax savings by donations apply only to charitable trusts, NGOs, and similar institutions. It doesn’t apply to religious trusts or institutions.

Exemptions on Donation Under Section 80G of the Income Tax Act

Section 80G Income Tax Act of 1961 is a little different, as it provides tax exemption to charity donors as well. Donations to an NGO under 80G are treated as deductions while calculating the total income of the donor. The recipient of the charity donation gives a receipt of the donation to the donor based on which they get the entitled deduction, provided the NGO or charitable trust is approved under Section 80G. In addition to this, tax exemptions on charity are also applicable, provided the charity organisation is established in India and is operating for charitable purposes in the country.

When you contribute towards the causes and initiatives supported by Narayan Seva Sansthan, you are eligible for a certain tax exemption on your donation to our NGO. This income tax exemption can be claimed only if an NGO registered and validated with the Income Tax Department provides donors with the necessary 80G  receipts and 80G certificates that are required by the government.

An important thing that you should keep in mind here is that the tax exemption under the Income Tax Act for charitable organisations, NGOs, and other non-profit organisations is governed by Section 12A. This however does not entail approval for deductions for donors or offer tax benefits on donations, the deductions for whom are listed under Section 80G. Deductions under Section 80G of the Income Tax Act also limit donating to religious trusts or institutions, which are not covered by an income tax exemption.

More about the Tax Exemption on a Donation Made to an NGO

Though the government allows the claiming of deductions on donations to charity organisations and relief funds, the tax exemption for NGO donations may not be applicable in all cases. People who are eligible to pay tax are automatically eligible for a tax benefit on donations under section 80G. Here, the taxpayer can be an individual, firm, company, Hindi Undivided Family, company, or anyone else. However, you should also be an Indian or a Non-Resident Indian (NRI) holding an Indian passport, and you should have a taxable income in India to be eligible for the covered tax benefit on donations.

Further, to claim an exemption under the Income Tax Act, a donor must satisfy the following criteria as well:

  • The donation should have been made to an approved, registered, and validated NGO or non-profit, as stated under Section 12A of the Income Tax Act.

  • The 80G receipt for the donation should be available.

  • In some cases, the donor may also be required to present a copy of the 80G certificate download of the NGO or organisation to which they made the donation.

  • The Income Tax Act also limits donating cash to Rs 2000. So, if you wish you wish to claim tax benefits on NGO donations that exceed an amount of Rs 2000, the donation cannot be made in cash. Some other mode of payment has to be used.

There are also no NGO tax benefits donations that are made in kind.

Eligibility for Claiming an Income Tax Exemption Under Section 80G

All taxpayers in India, or those having a taxable income in India, are eligible to claim tax savings by donations made to charity organisations as deductions under income tax section 80g, subject to the limits set down by the government of India. This includes individuals, Hindu Undivided Families, and companies. NRIs, who hold an Indian passport, are also entitled to the benefits of donations to NGOs under 80G, provided their donations are made to eligible institutions or funds.

Only donations made to valid, registered charities qualify for suitable deductions or for a tax exemption. The NGO also cannot be a religious trust or fund. This means that the trust or charity to which you are giving a donation should be registered under Section 12A, after which they are considered to be qualified for an 80G certificate download. Individuals must always check the credentials of a charity organisation before they make a donation to it.

Documentation Required for Claiming a Section 80G Deduction

If you wish to claim a Section 80G deduction, you will be required to submit the following documents to support the claim:

  • Receipts: It is mandatory for you to have a duly stamped receipt that has been issued by the charity organisation that has received your donation. The receipt should clearly mention important details like the name, address, and PAN of the trust, the amount that has been donated, as well as the name of the donor.

  • Form 58: This is an essential document for donations that are eligible for a 100% deduction.

  • The Registration Number of the Trust: Every eligible trust is provided with a registration number by the Income Tax Department, and it is important for the donor to ensure that this number is mentioned on the receipt of their donation as well. Additionally, the registration number should have been valid on the date on which the donation was made.