In the Indian context, donations refer to voluntary contributions made by individuals, businesses, or organizations to charitable institutions, trusts, or funds, typically without expecting any direct benefit in return. These contributions may be in the form of money, goods, or services and are often made to promote social welfare, education, health, disaster relief, or religious activities.
For businesses and taxpayers, donations hold financial significance under the Income Tax Act, 1961. Specific donations made to eligible institutions are eligible for tax deductions under Section 80G. The percentage of deduction (50% or 100%) depends on the type of institution or fund to which the donation is made and whether it qualifies for exemption without or with an upper limit.
From a compliance perspective, individuals and businesses claiming deductions must ensure:
- The donation is made to an approved institution or fund with a valid 80G certificate.
- Donations exceeding ₹2,000 must be made through non-cash modes (bank transfer, cheque, digital payment) to be eligible for deduction.
- A proper donation receipt is collected, containing details like the PAN of the donee, registration number under 80G, and amount donated.
In practical terms, understanding how donations impact tax liability is important for income tax planning, especially for businesses engaging in Corporate Social Responsibility (CSR) or individuals aiming to reduce taxable income ethically. Accurate disclosure and documentation of donations are necessary during income tax return filings and may be reviewed during assessments.
To explore how your donations may affect your tax savings or how to structure charitable giving for compliance, visit FinTax24’s Income Tax Solutions for expert assistance.