Section 80G Deduction - Income Tax Act

# Section 80G Deduction - Income Tax Act

Introduction to Section 80G Deduction

Section 80G of the Income Tax Act provides a tax deduction for donations made to specified relief funds and charitable institutions. The government introduced this section to encourage philanthropy by offering tax relief to individuals and organizations that donate to eligible trusts and institutions.

Not all charitable donations qualify for deductions under Section 80G. Only contributions made to prescribed funds and institutions are eligible for tax benefits.

Eligibility for Claiming 80G Deduction

• Available to Individuals, HUFs, Partnership Firms, Companies, and other taxpayers.

• Contributions should be made to eligible trusts, funds, or institutions.

• The donation receipt should contain the 80G registration number of the trust, issued by the Income Tax Department.

• The 80G registration must be valid at the time of donation.

Section 80G Tax Exemption

A taxpayer can claim deductions under Section 80G to reduce taxable income. The deductions vary depending on the type of fund or institution donated to.

Categories of Donations under Section 80G

Donations under Section 80G are classified into four categories:

1. Donations with 100% Deduction (Without Limit)

These donations qualify for a full 100% deduction without any limit on the taxpayer’s income.

Examples:

• National Defence Fund set up by the Central Government.

• Prime Minister’s National Relief Fund.

• Swachh Bharat Kosh.

• Clean Ganga Fund.

• National Illness Assistance Fund.

• National Sports Fund.

• National Cultural Fund.

Example Calculation:

If a taxpayer donates ₹50,000 to the Prime Minister’s National Relief Fund, the entire amount is eligible for deduction.

Taxable Income Before Donation: ₹6,00,000
Donation: ₹50,000
New Taxable Income: ₹5,50,000

2. Donations with 50% Deduction (Without Limit)

These donations qualify for a 50% deduction without any income limit.

Examples:

• Jawaharlal Nehru Memorial Fund.

• Prime Minister’s Drought Relief Fund.

• Indira Gandhi Memorial Trust.

• Rajiv Gandhi Foundation.

Example Calculation:

If a taxpayer donates ₹40,000 to the Jawaharlal Nehru Memorial Fund, only 50% of the donation (₹20,000) is deductible.

Taxable Income Before Donation: ₹7,00,000
Eligible Deduction: ₹20,000
New Taxable Income: ₹6,80,000

3. Donations with 100% Deduction (Subject to 10% of Adjusted Gross Total Income)

Donations under this category qualify for 100% deduction, but only up to 10% of the adjusted gross total income.

Examples:

• Donations to Local Authorities for Family Planning.

• Donations to the Indian Olympic Association.

Example Calculation:

If a taxpayer has an Adjusted Gross Total Income (AGTI) of ₹8,00,000 and donates ₹1,00,000 to a local authority for family planning, the maximum eligible deduction is 10% of ₹8,00,000 = ₹80,000.

Taxable Income Before Donation: ₹8,00,000
Eligible Deduction: ₹80,000
New Taxable Income: ₹7,20,000

4. Donations with 50% Deduction (Subject to 10% of Adjusted Gross Total Income)

These donations qualify for 50% deduction, with a limit of 10% of the adjusted gross total income.

Examples:

• Donations to Government or Local Authorities for Charitable Purposes.

• Donations for Renovation of Historic Temples, Mosques, Gurudwaras, Churches, etc.

Example Calculation:

If a taxpayer has an AGTI of ₹6,00,000 and donates ₹50,000 for a notified historic temple renovation, the maximum eligible deduction is 10% of ₹6,00,000 = ₹60,000.

Since only 50% of the donation is eligible for deduction:

Taxable Income Before Donation: ₹6,00,000
Eligible Deduction: ₹25,000 (50% of ₹50,000)
New Taxable Income: ₹5,75,000

New vs Old Tax Regime Examples with Tax Slabs

New Tax Regime (No Deductions Allowed Except 80CCD(2) and Standard Deduction)

Example: A taxpayer with an annual income of ₹10,00,000 under the new tax regime:

• Standard Deduction: ₹50,000

• Taxable Income: ₹9,50,000

• Tax Calculation:

  • ₹3,00,000 – Nil

  • ₹3,00,001 – ₹6,00,000 @ 5% = ₹15,000

  • ₹6,00,001 – ₹9,50,000 @ 10% = ₹35,000

  • Total Tax Payable: ₹50,000

Old Tax Regime (With 80G and Other Deductions)

Example: A taxpayer with an annual income of ₹10,00,000 under the old tax regime, claiming:

• 80C Deduction: ₹1,50,000

• 80D (Health Insurance): ₹25,000

• 80G Donation: ₹40,000 (Eligible Deduction ₹20,000 @ 50%)

• Taxable Income: ₹8,05,000

• Tax Calculation:

  • ₹2,50,000 – Nil

  • ₹2,50,001 – ₹5,00,000 @ 5% = ₹12,500

  • ₹5,00,001 – ₹8,05,000 @ 20% = ₹60,000

  • Total Tax Payable: ₹72,500

Conclusion

Section 80G provides an excellent opportunity for taxpayers to contribute to social welfare while availing tax benefits. Choosing between the new and old tax regimes depends on individual deductions and financial planning.