Section 80G deduction - An added incentive to donate to the PM CARES Fund

Anand Kalyanaraman | Updated on April 02, 2020 Published on April 02, 2020

Representative Image   -  Reuters

Centre’s clarifications clear doubts on a useful tax break

On March 31, the Centre announced that donations to the PM CARES Fund (Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund) will get tax breaks under Section 80G of the Income Tax Act. This should help galvanise contributions to the fund that has been set up to provide relief to persons affected by the coronavirus outbreak.

The announcement has three key aspects:

One, the PM CARES Fund will get the same tax treatment as available to the Prime Minister National Relief Fund. So, donations to the PM CARES Fund shall be eligible for 100 per cent deduction under section 80G of the Income Tax Act. Further, the limit on deduction of 10 per cent of gross income shall also not be applicable for donation made to PM CARES Fund.

What this means: Say, your income is Rs 20 lakh and you donate Rs 2.5 lakh to the PM CARES fund. You get a deduction under Section 80G on your entire donation of Rs 2.5 lakh, and your taxable income reduces to Rs 17.5 lakh (Rs 20 lakh less Rs 2.5 lakh). So, you pay less tax of Rs 78,000 (31.2 per cent of Rs 2.5 lakh).

Two, the Centre has said that the date for claiming deduction under Section 80G has been extended up to June 30, 2020. So, donations made up to June 30, 2020 shall be eligible for deduction from income of FY 2019-20.

What this means: If you donate, until June 30, 2020, to causes (including the PM CARES Fund) that are eligible for tax deduction under Section 80G, you can claim the donation as deduction from income of the fiscal year just gone by – that is, FY 2019-20 (the year ended March 2020). You can claim this deduction while filing your tax return for FY 2019-20; the due date for filing this tax return will likely be July 31, 2020, unless extended.

Three, the Centre has clarified that any person, including corporates, paying concessional tax on income of FY 2020-21 under the new tax regime, can make donations to the PM CARES Fund up to June 30, 2020 and can claim deduction under Section 80G against income of FY 2019-20. Such persons will not lose their eligibility to pay tax in the concessional tax regime for income of FY 2020-21.

What this means: Some of us may want to shift to the new, optional tax regime that is available from April 2020 for FY 2020-21 and beyond. Under the new tax regime, the rates of tax are lower, but there is no benefit of most tax exemptions and deductions, including Section 80G. Under the current tax regime that will also continue to be available, the rates of tax are higher, but you get benefit of exemptions and deductions, including Section 80G.

For those opting for the new tax regime, the Centre has set to rest worries regarding their eligibility for the Section 80G benefit on contributions to causes such as the PM CARES Fund. It has said that even those who opt for the new tax regime in FY 2020-21 and contribute to the PM CARES Fund up to June 30, 2020, can claim deduction under Section 80G against income of the fiscal year just gone by – that is, FY 2019-20 (the year ended March 2020).

Note that until FY 2019-20, there is only one tax regime that allows tax breaks, including Section 80G. So, those opting for the new tax regime from April 2020 will not lose the benefit of lower tax rates on income of FY 2020-21, only because they donated to causes such as the PM CARES Fund until June 30, 2020 and claimed the Section 80G tax break for FY 2019-20.

Basics of Section 80G

It’s a good idea to open up your purse strings and give generously to the fightback against the coronavirus. Your donations can not only help those in need, but it can also reduce your tax liability. The tax break under Section 80G allows amounts donated to be deducted from the taxable income. But there are some conditions and restrictions in claiming the tax break.

Entity eligibility: You will get a tax break only if you donate to institutions and funds approved by the Government. This list includes many government and non-government organisations. Check with the entity whether the donation qualifies for deduction under Section 80G, and if need be, ask to see its registration certificate. Donations to political parties are not eligible for tax breaks under Section 80G, but under another provision — Section 80GGC. Also, donations to foreign entities do not qualify for deduction under Section 80G.

Donate money, not in kind: You can get deduction under Section 80G only if you donate money. There is no deduction if you give in kind. So, if you want a tax break, donate funds, and not clothes, food items, utensils or such items. Also, donations in cash above Rs 2,000 are not eligible for deduction under Section 80G. So, if you intend giving more than Rs 2,000, do so in modes other than cash such as cheques, demand drafts and online bank transfers.

Deduction limits: There is no bar on the amount you can donate. But there could be limits on the tax deduction you can get. The amount qualifying for deduction under Section 80G can be either 100 per cent or 50 per cent, depending on the entity to which donation is made. The deduction is further limited to 10 per cent of adjusted gross total income in some cases.

Donations to many Government-run entities qualify for 100 per cent tax deduction, while in the case of non-Government entities, usually only 50 per cent of the donation qualifies for deduction. These amounts may be further subject to the limit of 10 per cent of your adjusted gross total income.

For instance, as recently announced, donations to the PM CARES Fund are eligible for 100 per cent tax deduction without limit.

Adjusted gross total income is your taxable income after taking into account deductions other than Section 80G (such as the Rs 1.5 lakh annual tax break allowed under Section 80C), and after reducing some other incomes such as long-term capital gains.

Here’s an example. Suppose your income for the year from various sources is Rs 20 lakh and you have invested Rs 1.5 lakh in the PPF that qualifies for deduction under Section 80C. This makes your adjusted gross total income Rs 18.5 lakh. Now, say you give Rs 2 lakh to an eligible entity, donations to which are qualified for tax deduction to the full extent (100 per cent). But if the donation is subject to the limit of 10 per cent of adjusted gross total income, the deduction you can claim will be restricted to Rs 1.85 lakh (10 per cent of Rs 18.5 lakh).

Claiming deduction: Employers usually do not take into account declarations from employees about Section 80G donations, while computing and deducting their monthly taxes. So, you may have to claim deduction on the donation at the time of filing your tax return.

When you donate, ask for a stamped receipt. This should include details such as the registration number, its validity, and PAN of the donee entity, the Section 80G tax benefit on the donation, the donor name, address, and amount donated. Some of these details will have to be mentioned while claiming the deduction in the tax return.

Submitting the receipt along with the tax return is not mandatory. But it may come in handy at a later date if the tax officer asks for proof of donation.

Published on April 02, 2020

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