What types of donations are eligible for tax deduction under Section 80G of the Income Tax Act?

The government and the Income tax Act of India have permitted tax exemptions on donations made to any charitable organization under Section 80G in order to further this charitable cause. The purpose of this act is to provide tax advantages to people and businesses in exchange for their charitable contributions. Read on to know more about the section in detail!

What is Section 80G of Income tax Act?

Section 80G of the Income Tax Act of India permits taxpayers to deduct contributions made to certain recognized charity funds and institutions. This tax benefit was introduced by the Indian government in an effort to promote charitable contributions and aid groups engaged in social, cultural, or economic development initiatives.

How does Section 80 G of Income tax work?

Here’s a summary of a few key points about Section 80G Act:

Tax deductions: This section enables donors to certain eligible charitable organizations and funds to claim deductions for their contributions. Contributions made by Indian  taxpayers to certain organizations are eligible for tax deductions of 50% to 100% of the amount donated. Your taxable income gets reduced as a result of this deduction, which lowers your total tax obligation. The kind of receiving organization determines the percentage of deduction. While some organizations give a 50% deduction subject to certain restrictions, others allow a 100% deduction with no upper limit on the donation amount.

Acceptable Contributions: Not every donation qualifies under this category. Under Section 80G, tax deductions are only available for contributions made to specific established institutions and funds.

Encouraged Fundraising: The government hopes to encourage individual financial contributions to charities by providing tax benefits. This type of financial assistance enables nonprofit establishments to broaden their scope and influence across diverse domains of social, cultural, and economic advancement.

Donation type: It’s crucial to keep in mind that not all contributions are eligible for Section 80G deductions. A list of recognized organizations and funds that are qualified to receive tax-deductible contributions is provided under the Income Tax Act. Donations beyond Rs 2,000 must also be provided via a non-cash method, such as an online transfer, credit card, or check, in order to be taken into account. Under this act, in-hand contributions, such as clothing or food, are usually not deductible.

Eligible donation categories under section 80G Act:

Not every donation is eligible for a Section 80G deduction. A list of recognized charitable organizations and funding types is maintained by the income tax department of India.

Eligible donations fall into the following categories :

• 100% Deduction (No limit)
• 50% Deduction (No limit)
• 100% Deduction (10% adjusted GTI limit)
• 50% Deduction (10% adjusted GTI limit)

100% Deduction (No limit): 

Under this category, a portion of certain donations are fully deductible, with no upper limit on the total amount contributed. Donations to national funds, particular educational institutions, government funding for social welfare are a few examples of these.

50% Deduction (10% adjusted GTI limit):

Under this category, your gross total income (GTI) may be deducted up to 10% of the total donated amount, although a wider range of donations are eligible for this category. Donations to certain religious organizations, recognized charities, and relief funds are a few examples that fall under this type of category.

Please note that any contributions made physically, like donating  food, clothing, medication, and other basic necessities, as well as donations exceeding Rs 2,000, are not eligible for Section 80G tax deductions. For donations over Rs 2,000 to be eligible under Section 80G, they must be made in any means other than cash.

100% Deduction (with 10% adjusted GTI limit):

Payments or donations made to the Indian Olympic Association and  governments that support family planning are eligible for deductions under this category. Under this category, only 10% of the donor’s adjusted Gross Total Income will be deducted. Any additional donations will be rounded off by 10%.

50% Deduction (No limit):

Donations made to the following trusts are eligible for a 50% tax reduction on the total amount donated:

• The Indira Gandhi Memorial Fund
• the National Children’s Fund
• The Prime Minister’s Drought Relief Fund

What are the different payment types eligible for tax deduction under section 80G?

Below are the payment modes that are usually eligible for tax deduction under section 80 G of Income tax Act:

• Cash
• Demand draft
• Cheque

Cash (donations less than Rs 2,000): Donations under Rs 2,000 can also be eligible for tax deductions.

Demand Draft: Section 80G advantages are also applicable to contributions made using demand drafts (DD).

Cheque: Section 80G allows tax deductions for financial contributions made with a check.

Eligibility and Documentation Requirements : 

The following documents are required for claiming the tax deductions under section 80G of the Income tax Act.

• Donation Receipt: The charity organization or trust to which you made a donation must provide you with a properly stamped receipt. This invoice should certainly contain
• Name and address of the person (taxpayer)
• PAN number, name, and address of the institution
• Date of donation
• Amount donated
• Payment method (essential for contributions over Rs. 2,000)
• The institution’s Section 80G registration number (ensure that it appears on the receipt)
• Form 58 : This form is only required if you want to claim a 100% tax deduction.  

Frequently Asked Questions (FAQs)

1. What types of payment modes are eligible for tax deduction according to section 80G of Income tax Act?

Any donations over Rs. 2,000 that qualify for a deduction under Section 80G, must be made using a method other than cash, like check, demand draft, or online transfer.

2. When was Section 80 G of Income tax Act introduced?

Section 80G deduction was first introduced in the fiscal year 2017–18.

Read here to know in detail about Section 80 of income tax act of India.

Final thoughts

To sum up, Section 80G is crucial in bridging the gap between social needs and government resources. It creates a win-win scenario for both charitable organizations, which require much-needed funding to carry out their objectives, and taxpayers, who gain from reduced or  lesser tax rates. We recommend you check out our website to know more about our professional tax related services.