Recently, a payroll manager in a customer organization asked us if his organization can accept information on charitable donations made by employees for calculating deduction under Section 80G of the Income Tax Act. Let us take a look at the conditions that payroll managers should consider while calculating deduction under Section 80G.
1. Consider only specified donations.
1. Consider only specified donations.
According to Section 80G, donation to funds and charitable institutions, which have obtained approval from the Income Tax Department, can be considered for calculation of deduction. However, the Income Tax Department has specified that an employer can accept information on only certain donations (such as those to The Prime Minister’s Drought Relief Fund) for the sake of calculating deduction on salary. For other donations, employees should seek tax relief in their tax return filed with the Income Tax Department and cannot route the same through the employer.
In respect of section 80G, no deduction should be allowed by the employer/DDO, from the salary income in respect of any donations made for charitable purposes. The tax relief on such donations as admissible u/s 80G will have to be claimed by the taxpayer in the return of income. However, DDOs, on due verification, may allow donations to the following bodies to the extent of 50% of the contribution:
a) The Jawaharlal Nehru Memorial Fund;b) The Prime Minister's Drought Relief Fund;c) The National Children's Fund;d) The Indira Gandhi Memorial Trust;e) The Rajiv Gandhi Foundation, and to the following bodies to the extent of 100% of the contribution:1) The National Defence Fund or the Prime Minister's National Relief Fund;2) The Prime Minister's Armenia Earthquake Relief Fund;3) The Africa (Public Contribution-India) Fund;4) The National Foundation for Communal Harmony;5) The Chief Minister's Earthquake Relief Fund, Maharashtra;6) The National Blood Transfusion Council;7) The State Blood Transfusion Council;8) The Army Central Welfare Fund;9) The Indian Naval Benevolent Fund;10) The Air Force Central Welfare Fund;11) The Andhra Pradesh Chief Minister's Cyclone Relief Fund, 1996;(12) The National Illness Assistance Fund;(13) The Chief Minister's Relief Fund or Lieutenant Governor's Relief Fund, in respect of any State or Union Territory, as the case may be, subject to certain conditions;(14) The University or educational institution of national eminence approved by the prescribed authority;(15) The National Sports Fund to be set up by the Central Government;(16) The National Cultural Fund set up by the Central Government;(17) The Fund for Technology Development and Application set up by the Central Government;(18) The national trust for welfare of persons with autism, cerebral palsy mental retardation and multiple disabilities.
Any donation to a fund/institution not featured in list specified by the Income Tax Department (presented in the above page) should not be considered by the employer for Section 80G deduction calculation.
2. Check proof of donation.
Even if the donation pertains to a fund/institution which can be considered by the employer, please scrutinize the proof of donation in order to check the veracity of the donation. Only donations in cash should be considered. In addition, the donation should have been made in the year in which the deduction is sought.
3. Apply the correct deduction percentage.
Please apply the correct percentage (50% or 100%) as specified by the Income Tax Department for each of the donations while calculating the extent to which the donation can be considered for deduction.
4. Limit on deduction under Section 80G.
For all donations that an employer can consider for calculation of deduction, there is no limit on the total deduction that can be claimed under Section 80G. For example, employees can claim deduction under Section 80G to the extent of even their total income (leading to zero taxable income).
When employees claim deduction under Section 80G by submitting information on donations directly to the Income Tax Department, the aggregate deduction on account of some of the donations is limited to 10% of the employee’s “Gross Total Income.” The term Gross Total Income is defined in the Income Tax Act. Employees need to know for which of the donations the 10% limit is applicable when they seek tax relief under Section 80G in their income tax return.