Income Tax Act, Section 80G deals with donations made towards charity, to provide tax incentives to individuals indulging in charitable activities.
This section offers tax deductions on donations made to certain funds or charities. An amount donated by an individual to an eligible charity can be claimed as a tax deduction while filing an income tax return.
If your NGO doesn’t have a 12A certificate, then it will be entitle to normal tax rates. So if you want your NGO to receive the benefit of income tax exemption, then you must get a 12A certificate for it.
All taxpayers (individuals/companies/Hindu Undivided Families) are eligible to make donations to charity under Section 80G and claim a deduction, subject to limits set down by the government.
NRIs donations are eligible to trusts or institutions and are also entitled to the benefits under Section 80G.
Certain Charitable Trusts, Religious Trusts, Societies and companies which come under Section 8 are eligible for 12A registration and it is not applicable for Private or Family Trust..
Individuals who wish to claim deductions under section 80G need to ensure that the organization they are donating to falls under the overview of this Act.
Only those donations are suitable for deductions which are registered under valid funds or charitable institutions. Trusts and charities need to be registered under Section 12A post which they qualify for the 80G certificate.
Individuals are advised to check the credentials of an organization before donating to it.
Donations under Section 80G are eligible for tax deductions under certain conditions and can be broadly classified into four categories, as mentioned below.
Donations made under this category enjoy 100% tax deduction and are not subject to any qualification limit being met.
Donations made towards these trusts qualify for 50% deduction.
Donations made to local authorities or government to promote family planning and donations to Indian Olympic Association qualify for deductions under this category.
In such cases, eligibility for deductions amount only to 10% of the donor’s Adjusted Gross Total Income.
Donations made to any local authority or the government which would then use it for any charitable purpose qualify for deductions under this category.
In such cases, eligibility for deductions amounts only to 10% of the donor’s Adjusted Gross Total Income. Donations which exceed this amount are capped at 10%.
There are certain basic criteria which must be met for a donation to be valid under Section 80G. Some of the major points are mentioned below.
The bill/invoice helps to track the number/quantity of goods purchased in the case of items. When the bill is paid on time, the date for which the bill is valid may also be identified.
It is also possible to check the name, licenses, date, and conditions of the vendor raised with the vendor based on the purchase order..
It is important to update Ledger accounts linked to the received bills. Here in the account books, an expenditure entry is normally expected to be made. In cases where accounting software is used, it can require managerial permission to report certain expenditures. Based on the bill value, the approval would be based. As a precautionary measure, the ‘builder and checker’ principle for posting is typically adopted by large organizations.
The payments need to be processed when and when the due dates arrive (based on a shared agreement with the vendor/supplier/creditor). Here it is important to prepare and verify the appropriate documents. It is important to scrutinize the details entered on this cheque, bank account details of retailers, payment vouchers, the original bill, purchase order/agreement, etc. The signature of an approved individual will often be needed. The vendors/providers/creditors ledger account must be closed in the account books until the payments are made. This will lower the previously created liability. The sum displayed as payable, in simpler terms, would no longer be considered as a liability. The above methods are organization-specific. For large firms with more approvals required, they may be more stringent. However before payments are made, the basic precautions must be taken into account in order to prevent errors and fraud.
Individuals wishing to claim deduction under Section 80G need to have the following documents to support their claim.
The validity of registration number is necessary and on the date of a particular donation, failing which a donation might be ineligible for deductions.
For any help on ITR Filing feel free to consult the tax experts at LegalRaasta. You can file ITR yourself via our ITR software or get CA’s help on filing an income tax returns. You can also use the option of Business Return, Bulk Return or Revised Return Filing.
Our team of experts at legalraasta will liaison with concerned departments, to obtain the “80G-12A certificate” for you and your NGO. An 80g certificate will allow you as a donor to obtain income tax benefits and A 12A certificate will allow the NGO obtain to avail the benefit of income tax exemption.
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