Taxability of Donations made to Charitable Trusts in India
Charitable institutions work for the benefit of the public as they contribute their services towards distinct social causes, including child education, poverty relief, women empowerment, disaster relief, and other social and cultural causes.
Donations made to such institutions are made in good faith by people to extend their support towards these social causes. As these organizations work independently for non-profitable causes, the government also extends its support for the promotion and development of such institutions by providing them with tax incentives and benefits for their donors as well.
In addition to supporting these entities, the government also ensures that different donation contributions are under its regulatory scanner to ensure the legitimacy of these donation entities.
The Income Tax Department has put in place certain provisions, for handling tax compliance on donations to charitable trusts for the donating taxpayers to claim exemptions on such donations. It is essential to make such donations legitimately in order to claim tax exemptions or deductions under the Income Tax Rules for such contributions.
Tax Sections Governing Taxability of Donations to Charitable Trusts
For contributions made to distinct charitable trusts recognized by the Income tax department, one can claim a tax deduction or an exemption towards such payments in the respective financial year by following the norms of the below-provided tax sections :
- Section 80G –Provides for a deduction on contributions made to recognized and registered charitable trusts made by Individuals/ Companies / Hindu Undivided families / Firms for up to 50% and 100% based on recognition of the entity type.
- Section 115BBC – Provides for non-eligibility of a tax deduction on contributions in the form of anonymous donations made to Charitable trusts and charge of Income tax at the rate of 30% for such anonymous receipt on the trust excluding donations made to temples, and religious places, or medical or educational institutions.
- Section 80GGA – Provides for eligibility of a 100% tax deduction for making donations to some recognized funds and Charitable causes including donations to research associations/institutes/ trusts involved in rural development, scientific research, afforestation, and poverty eradication.
- Section 35AC – Provides for eligibility of 100% tax deduction on donations made to any Charitable trusts or organizations formed by the National Committee (formed by the Central Government) for carrying out a certain project or Scheme.
Donations to Privately Held and Government Recognized Charitable Trusts
As per the Income Tax Act 1961, those contributing towards a recognized and registered Charitable trust under India Trust Act 1882 and Societies Registration Act, 1860 shall be eligible for a deduction against a contribution made to such entities.
Other than privately registered entities under the Societies Act, the Income tax department also provides relief against donations made to recognized entities those registered for the management of government-recognized funds and causes including :
- National Children Fund
- Indira Gandhi Memorial Fund
- Rajiv Gandhi Foundation
- Maharashtra Chief Minister’s Relief Fund
- Funds for Relief to Earthquake Victims
- Samiti or Trust Formed for Improving Education
- Army Central Welfare fund
- NationaI Illness Assistance Fund
- National Sports Fund by CG.
- Recognized fund for Technological Developments
- The Swachh Bharat Kosh
- The Clean Ganga Fund
- The National Fund for Control of Drug Abuse
- Funds or entities constituted for town planning or development of cities.
- Trust or fund managed for the development of temples, mosques, or needy homes.
- For the development of Sports or promotion of sports.
Eligibility for Deduction on Contribution to Charitable Trust
To the listed funds under Section 80G of the Income Tax Act, contributions made by taxpayers to most of the recognized funds provide a 100% tax deduction. While for contributing to a certain trust not specifically recognized a deduction for 50% of the amount contributed shall be provided based on the certification holding of the entity as a trust.
It is necessary to contribute in the form of monetary payments in order to claim a deduction against tax on donations to Charitable Trusts, while donations can be made through cheques, bank drafts, or direct bank transfers. No materialistic things like food, clothes, or any precious material shall be considered a donation.
How to Claim for Deduction against Tax on Donations to Charitable Trusts?
In order to claim a deduction against a donation made to any recognized and registered Charitable trust, the following documents are required :
- Receipt of Donation from the Charitable Trust.
- Form 58 for claiming a 100% deduction on the amount.
- Copy of Certificate of Registration of Trust with Registration number printed on the certificate.
- Copy of Form 10BD (Return for Donations received during the year by the Trust) and Form 10BE (Certificate of receipt of donations during the year ) furnished by the receiving trust for confirming the receipt of donation to the tax department.
To claim a deduction on tax on donation to a Charitable trust, the taxpayer has to fill in the amount paid to the trust for which the receipt is provided in its respective tax form by uploading the required Form 10BE.
No, donations made to dormant political parties shall not be considered a donation to Charitable trusts as they are subject to different tax rules including Section 80GGB and separate compliances based on their entity formation.
For Private trusts registered in accordance with the rules of the India Trusts Act, 1882, or Societies Registration Act, 1860 – all donations made to such entities are eligible for exemptions even if recognized by Government or not.
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