Donations, which are agreements wherein one person freely chooses to donate something of value to another, are covered by the Income Tax Act and, as such, are taxed. However, because it is a good deed, the government also offers some tax benefits on the gifts made under Section 80G of the Income-tax Act of 1961.
Individuals who want to claim deductions under section 80G must make sure the charity they are giving to is covered under the Act. Only contributions given to legitimate, legally recognised charities or funds are eligible for the appropriate deductions. After being registered under Section 12A, trusts and charities are eligible for the 80G certificate. Donations are divided into four categories and taxed accordingly.
Here are the categories under section 80G:
Complete deduction without any limit
Donations that fall under this category are completely tax deductible and are not subject to any qualifying requirements. Such deductions apply to contributions made to entities like the National Defence Fund, National Foundation for Communal Harmony, Prime Minister's National Relief Fund, National/State Blood Transfusion Council, etc.
Complete deduction (Subjected to 10% of adjusted gross total income)
This category allows for deductions for contributions given to the Indian Olympic Association and local governments that support family planning. Only 10% of the donor's adjusted gross total income is eligible for deductions in certain circumstances. Donations beyond this threshold are rounded to the nearest 10%.
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50% deduction without any limit
Contributions to trusts like the National Children's Fund, the Indira Gandhi Memorial Fund, and others are eligible for a tax deduction of 50% of the donation amount.
50% deduction (Subjected to 10% of adjusted gross total income)
This category allows for deductions for gifts made to any local government or agency that would utilise the money for a charitable purpose. Only 10% of the donor's adjusted gross total income is allowable as a deduction in these circumstances. Donations that are made in excess of this limit are limited to 10%.
It is to be noted that the institution receiving the contribution is required to provide the donor with a receipt, which serves as official documentation for the deduction claim. In addition to the gift amount, the receipt should include the donor's name, address, and PAN.