The Hindu Business Line : Points to care if you have money to spare

What are the potential tax benefits of a charitable donation? The first caveat is that not all charitable donations are tax-deductible. Indian tax laws currently permit deductions only against financial contributions. Material contributions and those of time or skill are not deductible. And `tax-exempt' does not mean `tax-deductible'. To make sure that your donation is deductible, look for an organisation that is registered under Section 80G of the Income-Tax Act.

Section 80GGA of the I-T Act allows a deduction for donations towards scientific research or rural development. This includes "an approved association or institution which has as its object the undertaking of any programme of rural development, to be used for carrying out any programme of rural development or which has as its object the training of persons for implementing programmes of rural development."

Under Section 80G, one can get a 50 per cent deduction on the donation. And under Sections 80GGA and 35AC, for the entire amount donated. The deductions are available for sums up to 10 per cent of one's taxable income (that is, gross total income, minus deductions, capital gains, income exempt from tax and Section 10 deductions). Certain funds are exempt from this limit — for the complete list consult a tax advisor.

While there is no right or wrong amount to give, here are some things to keep in mind:

There are several ways one can structure a donation. It can be one-time, annual or monthly depending on one's preference. Most charities will make a request once a year, but donations can be made based on one's own schedule.

Here are some interesting new forms of charity that are growing in popularity:

Legacy giving — where individuals nominate a charity as a beneficiary in their wills;

Gift registries — where couples getting married invite guests to make a contribution to their preferred charity in lieu of wedding gifts;

Standing instructions on payrolls, bank accounts or credit card payments;

Corporate donation matching programmes where employers match the amounts contributed by individual employees; and

Online donations

Another critical factor for most donors is how much of the donation actually goes to the cause. Organisations that do not have to raise all their resources themselves can give 100 per cent of the donation to those in need, others retain a percentage to cover operating costs. Charities should be upfront about this, so make sure to do your homework well so as to end up with an arrangement that makes you comfortable. For example, for every Rs 100 CRY raises in donations costs Rs 33 to raise. This includes the costs of producing and mailing fundraising material, personnel costs linked to fundraising, and the costs of financial accounting and reporting.

Here are some tips for first-time donors to charity:

Ask for written information: A legitimate charity will give information on its mission, how the donation will be distributed, and proof that the contribution is tax deductible.

Don't send cash: For security and tax record purposes, always pay by cheque, demand draft or through credit card.

Watch out for similar sounding names: Some dubious charities use names that look or sound similar to those of respected, legitimate organisations. Make sure to check the name of the charity closely and the people behind it.

Refuse high-pressure appeals: Legitimate charities will not push one to donate on the spot.

Get a receipt and a tax-certificate: To claim a tax deduction, Form 58A issued by the charity will be required.

Timing is everything: To qualify for deduction in a given tax year, the gift must be made by March 31 of that year.