Tax saving on donations is not a given. Know why

Not all donations qualify for 100% deduction. Every fund/charitable institution is eligible for either 50% or 100% deduction with or without a qualifying limit.

How to save more tax is probably on every individual’s mind. With Sec 80C and other sections also maxed out, people have been asking about saving taxes by using Sec 80G wherein deduction is allowed towards donations to a charitable organisation/fund. 

Should one give to charity just to save tax? 

There are many misconceptions regarding donations. Firstly, Sec 80G exemption is not available in the new tax regime. If a person who has opted for the new tax regime donates to an eligible fund, a tax exemption cannot be claimed against it. Further, cash donations above Rs 2,000 and donations in kind will not be permitted for deduction under Sec 80G. 

Not all donations qualify for 100 per cent deduction. Every fund/charitable institution is eligible for either 50 per cent or 100 per cent deduction with or without a qualifying limit. The maximum qualifying limit is 10 per cent of the adjusted gross income which is calculated after reducing certain sections like Section 80C and capital gains. Excess amount donated  beyond the 10 per cent limit will not be eligible for deduction.  

Some prominent funds eligible for 100 per cent deduction without any limit are PM National Relief fund, National defense fund etc. Almost all private religious and charitable institutions qualify for 50 per cent deduction subject to the maximum limit. Thus, if an individual donates Rs 50,000 in a year to a charitable foundation, the amount that can be claimed as tax deduction is only Rs 25,000. 

In recent years, important changes have been made to Sec 80G, the most critical one being that the donee institution needs to issue a certificate of donation to the donor. This is not a simple donation receipt but a statement of donation in Form 10BE, which has been filed electronically on the income tax portal. The   certificate  needs to be filed by May 31 for the previous year donations. Without the donation certificate , taxpayers cannot claim the  tax deduction on their donations. 

Of course, donations are born of personal values, with the thought of helping the community. An action to give back to society really cannot be done with the primary goal of  financial savings in mind. The amount saved is not much. At best 3-4 per cent of the gross income is saved. Sec 80G needs to be looked at as a minor benefit in a larger action and not used as a tool for tax planning.

Giving is not just about making a donation. It is about making a difference.