Understanding Section 80G: A Guide To Income Tax Savings

Individuals have the opportunity to minimize their income tax liability through charitable donations. Section 80G of the Income-tax Act, 1961 offers tax-saving benefits to those who contribute to specified charitable organizations. 

It is important to note that this deduction can be availed of only if an individual chooses the old tax regime for a specific financial year. Continue reading to understand how Section 80G can assist individuals in lowering their income tax payments.

Understanding Tax Savings with Section 80G of the Income Tax Act, 1961

Section 80G of the Income Tax Act, of 1961, provides an avenue for taxpayers to reduce their tax liabilities by contributing to qualified charitable institutions. 

Donors can claim deductions ranging from 50% to 100% of the donated amount when they support eligible organizations. 

However, specific limits and conditions must be met to avail of these deductions. In this comprehensive guide, we will delve into the intricacies of Section 80G and explore how it can be a valuable tool for tax savings.

Eligibility For Section 80G Deductions

Individuals from all categories, including both resident and non-resident taxpayers, who have made donations to approved funds, institutions, or associations, are entitled to seek deductions from their gross total income under Section 80G. 

It is crucial to emphasize that this deduction is exclusively available to individuals who have chosen the traditional tax regime. Taxpayers under the new tax regime are ineligible for this deduction benefit.

How Much Deduction Can You Claim Under Section 80G?

When it comes to claiming deductions under Section 80G, there are different scenarios:

(a) You can claim a 100% deduction without any maximum limit.

(b) You can claim a 50% deduction without any maximum limit.

(c) You can claim a 100% deduction, but there is a maximum limit.

(d) You can claim a 50% deduction, but there is a maximum limit.

To determine which category applies to your situation, you first need to identify the category to which the fund or charitable institution belongs. This will help you determine the deduction percentage (100% or 50%) and whether there is a maximum limit.

For some institutions, you can claim 100% or 50% deductions without any qualifying limit. However, in other cases, there may be a maximum qualifying limit for the deduction. If the total amount of your donations to these specified funds or institutes exceeds 10% of your adjusted gross total income (GTI), any amount beyond this 10% limit will not be eligible for deduction.

To calculate your adjusted gross total income, you subtract the following from your gross total income:

(a) Deductible Amount u/s 80C to 80U (except Section 80G)

(b) Share of profit in the Association of Persons (AOP) eligible for rebate under Section 86

(c) Long-term capital gains

(d) Short-term capital gains from specified securities under Section 111A

(e) Any income mentioned in Sections 115A, 115AB, 115AC, 115ACA, 115AD, and 115D

Here's an example to understand it better: Let's say your gross total income for the year is Rs. 10 lakh. You donated Rs. 90,000 to NGOs, and are eligible for a 50% deduction with a qualifying limit of 10%. You also claimed deductions of Rs. 1.5 lakh under Section 80C and earned Rs. 1 lakh as short-term capital gains from selling equity shares.

To find the maximum amount you can claim under Section 80G, you first calculate your adjusted gross total income. It's your gross total income (GTI) minus deductions under Section 80C and short-term capital gains under Section 111A, which, in this case, is (10 lakh - 1.5 lakh - 1 lakh) = Rs. 7.5 lakh.

Next, you determine the qualifying limit for your donations u/s  80G, which is 10% of your adjusted gross total income. 

At this momentum, Rs. 75,000 is the qualifying limit (i.e., 10% of Rs. 7.5 lakh).

The maximum deduction you can claim under Section 80G is 50% of the lower of:

(a) The amount donated (Rs. 90,000), or

(b) The qualifying limit (Rs. 75,000).

In the given situation, the lower amount is the qualifying limit of Rs. 75,000. Thus, the maximum deduction permitted u/s 80G is 50% of Rs. 75,000, which amounts to Rs. 37,500. Thus, you can claim a deduction of Rs. 37,500 under Section 80G for your donations to eligible NGOs.

Funds For Full Deduction:

You can claim a 100% deduction without any upper limit when you donate to certain funds or causes. Here's a list of such eligible funds:

1. National Defence Fund

2. PM National Relief Fund

3. PM Citizen Assistance and Relief in Emergency Situations Fund (PM CARES FUND)

4. National Children's Fund

5. CM Relief Fund or the Lieutenant Governor's Relief Fund

6. Zila Saksharta Samiti

7. Army Central Welfare Fund

8. Indian Naval Benevolent Fund

9. Air Force Central Welfare Fund

10. Andhra Pradesh CM Cyclone Relief Fund

11. National Sports Fund

13. Swachh Bharat Kosh (excluding CSR contributions)

14. Clean Ganga Fund (excluding CSR contributions) - Applicable only to resident taxpayers

16. National Illness Assistance Fund

17. National Blood Transfusion Council or State Blood Transfusion Council

18. Fund established by a State Government for providing medical relief to the poor

19. National Cultural Fund

20. Fund for Technology Development and Application

21. National Foundation for Communal Harmony

22. PM Armenia Earthquake Relief Fund

23. Africa (Public Contributions - India) Fund

24. CM Earthquake Relief Fund, Maharashtra

25. A university or educational institution of national prominence approved by tax authorities

26. Fund established by the State Government of Gujarat solely for earthquake victims' relief in Gujarat.

Funds for Full Deduction with Maximum Limit

You can claim a 100% deduction, but there is a maximum limit when you donate to certain funds with specific purposes. Here are the eligible funds:

1. Family Planning Association of India/Red Cross Society of India

2. Government or any approved local authority, institution, or association for promoting family planning.

3. Indian Olympic Association or other recognized associations for sports and games infrastructure development or sponsorship in India.

Please note that this deduction is available only to companies and not individuals.

It is essential to keep in mind that the income tax department periodically updates the list of approved institutions eligible to receive donations under Section 80G. Therefore, before making a donation, it is crucial to ensure that the institution is currently included in the approved list.

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