When The Income Tax Act, 1961 was formulated, there was left some space for accommodating exemptions in case some individual funds are being donated. In 1967, Section 80G came up; this section allows the use of private money for the social welfare programs and also offers tax rebate on the amount donated.
Transactions that are exempted under 80G
This act was predominantly designed to ensure that the philanthropist endeavors are allowed tax exemption. The most obvious method of philanthropy in the present times is making donations to charitable trusts. Looking at the size of our country, one can deduce that there are an incalculable number of such trusts. Thus the government made it mandatory for all the trusts of this kind to register with the Income Tax Department. Tax exemptions are provided only when donations are made to the registered trusts.
- The amount donated to any government trusts or funds setup by the government of India is subject to receive tax rebate at variable rates.
- The donations forwarded to private trusts which are registered with the government of India are allowed to avail the tax benefits.
- In case of natural calamity, the government tends to make a fund that is exclusively meant for carrying the expenses of the relief work. Any donations meant for this relief funds are liable to tax exemption at 100% deduction without any qualifying limit.
- Any individual contributions to the research institutions recognized by the government would attract tax benefits.
Donations up to 10 % of total gross incomes are exempted under this section. After that the donations cease to qualify for tax rebate.
Transactions that are exempted under 80GGA
While the primary list of tax exemptions has been formulated under section 80G, a subsection 80GGA also contains some guidelines and an additional list of tax exemption eligible donations. The most important thing here is that while the under 80G, the incentives are liable for some qualification conditions, but the whole amount put under 80GGA is eligible for 100 % tax rebate.
- Any financial help offered to an educational institution like school, college or university registered with the Income Tax Department is eligible to avail tax benefits.
- Passing on donations to a registered organization working towards rural development would attract tax benefits on that amount.
- Any funds that have been set up by the government to facilitate the rural development can also receive funds from individuals. These donations are also exempted from taxation.
- National Urban Poverty Eradication Fund is a dedicated fund setup by the government to help in uplifting the urban poor. Any donations made to this fund are considered eligible for tax exemption.
- Several private or semi government organizations are licensed by the National Committee in order to facilitate the distribution of government certified projects. Any donations to these organizations attract tax exemption.
The Indian culture has been designed in a way that encourages the idea of assisting in social welfare according to the self ability. While there can’t be any price tag over the philanthropist activities, it is very logical to give some incentives in order to encourage these activities. This idea has been forwarded through these sections in the Income Tax Act.
Donating money under these sections would not only get you some mental satisfaction for delivering on the social responsibility but will also bring tax rebates; it’s just a win-win situation for all.