The concept of charitable financial planning is popular in international markets. This is now gaining popularity in India.There are many reasons why you might want to give money to charity. It could be because you want to help the needy or it could for your own emotional well-being. Whatever the reason, donations always make the giver and the receiver feel good about the whole thing.
However, if you wish to donate meaningfully throughout the year, you will need to plan for it. You can make it one of your financial goals so that you can save sufficient every year for making donations. If you would like to donate a certain amount per year, you can set aside some money from time to time. There is a good reason why making money donation is preferable. You can claim these donations as tax deductions when you file income tax returns. Here are the sections under which you can claim tax deductions.
Section 80 GGC – Contribution To Political Parties
You receive tax deductions on your donations to an electoral trust or any political party registered under Section 29 A of the Representation of People Act, 1951. However, you can make payments only through legal channels such as cheques and net banking. Payments made using cash or in-kind do not qualify for tax deductions.
Under this section, you can donate up to 10% of your gross earnings for the financial year to claim tax deductions. Note that these deductions are available only to salaried individu9TDSals who don’t have an alternative source of income such as a business. Tax Deducted at Source (TDS) will not be applicable to these tax deductions.
You can donate under this section if you are genuinely interested in donating to a political cause. Using this section to evade taxes may not be the right thing to do. With a country-wide crackdown on tax evasion and black money, it is good to use section 80GGC only to make legitimate donations.
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Section 80 G – Donations To Social Causes
If you love to donate to the social causes you support, you can get tax incentives under section 80G. Individuals can claim the whole or part of their donations as tax deductions under this section. There are charities to which you can donate and get 100% tax-deduction. Donations to certain charities may be subject to terms and conditions.
For instance, for donations made to such funds as the National Defence Fund, The National Foundation for Communal Harmony, Prime Minister’s National Relief Fund, etc., you could claim 100% tax deductions. There is no limit to the amount of money that you can claim. However, for donations made to funds such as the Prime Minister’s Drought Relief Fund you can claim 50% tax deduction. There is no limit to the amount that you can claim for these funds too.
If you are the philanthropist kind, there are charities where you could pay up to 10% of your adjusted gross income can help you get a 100% tax deduction. Gross adjusted income for this purpose is calculated as gross total income minus (i) all exempted incomes, (ii) long-term capital gains and, (iii) all deductions under section 80C to 80U except for 80G. For instance, donations to a government-promoted organization for family planning will get you 100% tax deduction and for donations to a corporation promoting the interests of minorities, you get 50% tax deduction.
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Charity organizations that are eligible for 100% tax deduction include:
i. National Defence Fund
ii. Prime Minister’s National Relief Fund
iii. The National Foundation for Communal Harmony
iv. National/State Blood Transfusion Council
Charity organizations that are eligible for 50% tax deduction include:
i. Prime Minister’s Drought Relief Fund
ii. National Children’s Fund
iii. Indira Gandhi Memorial Fund
You can claim tax deductions under Section 80G if your donation is made through cheque, draft or cash. While you can donate any amount to a Non-Government Organization (NGO) in cash, the tax deduction is only available if the cash donation does not exceed a certain amount. This was Rs. 10,000 earlier. From Financial Year 2018 onward, cash donations exceeding Rs. 2000 are not be allowed as a tax deduction. Donations such as food, clothes, medicines etc. are not valid under Section 80G for tax deductions. Therefore, it is imperative that you use cheque or online payments for donations to qualify as a tax deduction.
If you need to apply for a tax deduction while filing your income tax returns, you should possess a stamped receipt from the NGO or the organization to which you donated money. The receipt should clearly mention the charity’s name, address and PAN of the organization. The receipt should have your name and amount donated too. If you got an online receipt for the donation, you can use it to claim tax deductions. In case you want a 100% tax deduction on your donations, you will need to have Form 58 handy. You must know the charity organization’s registration number and validity dates. You will need to give the 80G certificate.
If you want to make donations throughout the year, it is good to build a fund for these donations. Once you save and make a fund, you can use the fund to donate money. Here’s help on saving for this fund.
Building a fund
Those who want to donate money to charities generally save 1% of their annual investments towards building a fund that could be utilized to help others. The best way to save for such donations is through investing in ultra-short-term bond funds or liquid funds, either through SIPs or a lump sum. This will ensure that your money is accessible, and your capital remains safe from equity market risks. You could also save using recurring or fixed deposits.
If you think building a fund will impact your investments, you might look at making donations through insurance. You could such as name an organization as the beneficiary to your life insurance policy. —This will help your preferred organization to get a large amount of money. The amount will be much more than what you could have donated to social cause in cash while you were living. They might recognize your contribution and it could be a legacy for your children and grandchildren. However, this donation may involve higher costs every year, especially when you grow older as insurance premiums are more for elderly people.It may not give you the satisfaction of having donated as you don’t see the organization receiving the money.
Whether you choose one of these methods of giving to charity or come up with other ways of contributing to the needy, helping organizations that you love and support is a win-win for everyone involved.
