Donation and Income tax Provision

 Since the last week, we all are celebrating one of most favourite festivals “Ganeshsotsva”. Maharashtra state in India is well known for its big & informative pandals and eco-friendly decorations. This year due to pandemic situation, every group/Mandal/trust is celebrating the festival with utmost care and taking all the possible measures for avoiding the crowd. Few organisers have organised the festival through online platforms with the live daily “Pooja” & “Aarti” (Prayers). On this occasion first, I would like to appreciate all the members of the “Ganesh Mandal” not only for their caring behaviour but also the work they have done for lonely senior citizens, poor people during the lockdown. During this period, these people worked fearlessly to satisfy the daily needs of old people who are living alone or needy ones.

In India “Dan” means act of donating has played a very crucial role in the daily life. “Act of donating” is considered as the kind and compassionate behaviour of human. In Sanskrit it is said that, दानेन प्राप्यते स्वर्गो दानेन सुखमश्नुते ।. It means a person can get heavenly joy due to the act of donating. In this blog we are going to understand the Section 80G of Income tax act, which speak about the deductions available for donor.

Income tax Act, Section 80G

In this paragraph, let’s take a rough idea about deduction available under 80G. A person can claim the deduction of donation given to the registered institution if he satisfy the following condition

Donation should be given in

1.       Cash (Only upto Rs.2,000)

2.       Cheque, online transfer, debit card (Full amount)

3.       Donor has to preserve the receipt of the donated amount as the statement of proof

*Donation given in kind cannot be considered for the deduction

It can be seen that funds to which donor is donating the money are classified in two parts based on the deductions available on the amount contributed

1.       Funds where, 100% amount of donation can be claimed as deduction

2.       Funds where, 50% amount of donation can be claimed as deduction

Readers may ask the questions, is it necessary to remember such list of funds’ name? Of course not, readers are requested to check the website of such funds for getting the above details. In some cases, one can find the details on the receipts of the funds as well. In case of confusion, one can also consult with the expert before donating the money.

Let’s understand the impact of deduction available under section 80G on the tax liability of person as usual with the simple case study

Mr Ramakant is working as senior manager in the IT sector, earning Rs.9 lacs (Rs.75,000 monthly). He is claiming the deductions under section 80C of Rs.1,50,000 due to LIC premiums and tuitions fees. He is also paying mediclaim insurance premium for himself and his dependent parent. In the current year, he has invested Rs.50,000 in NPS. Let’s calculate the Ramakant’s total liability under two different scenarios

A.      If Ramakant donates 5% of the salary i.e. Rs.45,000 to such fund for which 100% deduction can be claimed

B.      If Ramakant do not donate at all

 

Particulars	Without any donation	With Donation of Rs. 45,000
Gross Salary	9,00,000	9,00,000
Less : Standard Deduction	50,000	50,000
Less : Tax on Employment	2,500	2,500
Income from Salary	8,47,500	8,47,500
Gross Total Income (A)	8,47,500	8,47,500
Deductions Under VI (A)
LESS
1. 80C (LIC, Tution Fees)	1,50,000	1,50,000
2. 80CCD (NPS)	50,000	50,000
3. 80D ( Mediclaim)	50,000	50,000
4. 80G Donation	-	45,000
Total Deduction (B)	2,50,000	2,95,000
Net Taxable income (A - B)	5,97,500	5,52,500
Tax Payable	32,000	23,000
Cess @4%	1,280	920
Total Tax Payable	33,280	23,920
Saving In tax liability due to donation	9,360

 

It can be seen that Ramakant’s tax liability has been curtailed by Rs.9, 360 due to deduction of section 80G. In simple words, we can say that even Income tax Act, is appreciating the generous act donating by way of giving the deductions.

If we scrutinise the above table only from the financial point of view, then many people may also argue, saving the tax liability of Rs.9,360 by spending Rs.45,000, it’s kind of foolishness. As mentioned in the earlier blog also, till today we don’t have unit of measurement for quantifying the compassion, kindness, which may be beyond the financial calculation. 

It is universal truth that “Money” is useful to have comfortable life and one should take efforts to earn the same by rightful ways. Along with earning, we must remember to give the some part of earnings to the needy people of the society as well. At this concluding paragraph, I would like request the readers to refer one fantastic chapter “Amma what is your Duty?” from the book Here, There and everywhere published by Penguin and beautifully narrated by SUDHA MURTHY madam.