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Charity Can fetch you Tax Benefit

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Charity Can fetch you Tax Beneficial

Furnish donation receipts with Form 16 to claim deduction



Salaried individuals are likely to get a mail from their HR department soon asking them to collect Form 16, a crucial document needed to file tax returns that contains the details of a person's income, tax breaks claimed and tax liability. However, the document doesn't account for deductions on donations made under Section 80G. That means, if you have made any donation that qualify for tax deduction under Section 80G, you will have to furnish details of donations made while filing your return and claim a refund. At least this year.


From the financial year 2012-13, employers have been again given the option of accepting receipts for donations made and incorporating it in Form 16. So, technically, the I-T department has given employers the option to consider donation receipts and provide benefits under Section 80G. However, many employers and employees are not aware of this development.


Employees will have to claim deductions on donations made on their own, unless they were chanelled through their employers. Employees can claim deduction for donations made to any fund or charitable institution at the time of filing the tax return. For some donations made through the employer to specified funds such as Prime Minister's National Relief Fund, the Chief Minister's Relief Fund or the Lieutenant Governor's Relief Fund, the deduction can be considered at the time of tax-withholding by the employer.


The first step is to understand the extent of deduction allowed on your act of charity. Unlike tax concessions under Section 80C, the deduction on donation is subject to limits, depending on the category its falls into. And, tax consultants point out that not identifying the right limit is the most common error that taxpayers make. So, before filing your return, you need to ascertain the gross qualifying amount. This will be the aggregate of all donations made during the year.

Next, you need to calculate the net qualifying amount.


Out of the donations bracketed under gross qualifying amount, there will be some that will be eligible for 100% deduction (A) and some for 50% (B). Then, there is another category where the donation is eligible for 50% deduction, but is subject to an upper limit of 10% of adjusted gross total income (C).

So, net qualifying amount – that is, A+B+C – will be deducted from your gross total income and the balance will be taxed. You can look up the list of charities that entitle you to benefits under Section 80G. For instance, donations made to Prime Minister's National Relief Fund or National Defence fund will be eligible for 100% deduction, without any qualifying limit. In case of donations to Prime Minister's Drought relief fund, National Children's Fund, etc, the relief is restricted to 50%. Then, there is a third category that covers charities approved by the Income Tax Department – you can ascertain their eligibility on the basis of the certificate they furnish. A certificate issued by the respective trust/institution is required to substantiate the claim under Section 80G or the certificate issued by the Drawing and Disbursing Officer (DDO) or the employer. The list would include charities like Child Relief and You (CRY), In Defense of Animals and so on. If you are donating funds to their causes, you can claim a deduction of 50% of the amount. However, the sum total of donations in this category cannot exceed 10% of adjusted gross total income. Make sure you preserve the receipts of donations, which usually carry a stamp specifying that the charity is eligible for 80G deductions, issued by the NGOs. "While you do not need to attach any documentary proofs along with your tax return, you need to have the certificate and PAN of the charity while filing the return.


Maintaining these records will also come to your aid should the tax authorities ask you to furnish the receipts at a later stage. This apart, you need to bear in mind the implications of donating money in the form of cash. From financial year 2012-13, cash donations in excess of . 10,000 will not qualify for deduction under Section 80G.


The entire process will come to a close once the refund amount is credited to your account. At your end, you need to provide all the details and track the refund claim till it reaches your bank account.

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