Do donations help to minimize an individual’s tax liability?

In the tax-planning season, most people rush to make investments to reduce their tax liability. It is found that individuals pay more taxes than they are bound to.

Lack of sufficient time for tax-planning as well as lack of awareness about the allowances and rebates under the Income Tax Act are responsible for this.

How can one save tax?

The Section 80C deductions along with the deductions as given in many other sections help people to save taxes.

There are many ways available to reduce the amount of tax that must be paid. Some methods are fundamental and some depend upon the financial position of an individual. The basic principles of saving tax are to reduce income, increase deductions, or using tax benefits.

Benefits under Section 80G:

Section 80G offers income tax deduction for donations to some specified funds and charitable institutions. In other words, subject to some limits, donations made towards specified funds or institutions offer tax benefits under Section 80G of the Income Tax Act.

To minimize taxes one should donate to an approved institution and provide the original receipt to his employer. In the Form 16 the amount has to be shown under Chapter VI.

Purpose or providing the deduction:

The Income Tax Act encourages charitable acts done for the benefit of the poor and needy people.  For this reason the donors get tax benefits under Section 80G.

Who are eligible to get this deduction?

This section applies to all assessees, who make a donation, no matter whether the donor is an individual, HUF or a company.

Amount of deduction which can be availed:

The amount of deduction that can be availed under section 80G of the Income Tax Act is either 50% or 100% of the contribution, depending upon the type of charitable institution to which the donation is made.

For some funds, the total deduction limit is restricted to 10% of the Gross Total Income. In those cases, even if one donates larger than 10% of his Gross Total Income, the amount of donation eligible for claiming a deduction is always 10% of the Gross Total Income.

Deductions for different types of donations:

The donation has to be paid from one’s taxable or exempted income. Deductions can be availed from donations made in cash or cheque only. Donations made in the form of food or clothing is not eligible for deduction.

Donations made to any foreign charitable trust are not eligible for deduction in India. Donations made to political parties are eligible for total deduction.

Donations made to any association notified under section 10(23) for development relating to sports or games, or for its sponsorship, provides deduction to companies only.

All charitable institutions do not qualify for a deduction. Only the approved charitable institutions and funds qualify for a deduction.