Allowable limit under i-tax

This query is : Resolved

kailas patil (Querist)
Follow

17 July 2014 Sir, I HAVE PAID RS 15000/- ON ACCOUNT OF DONATION TO CHARITABLE TRUST, WHICH IS ELIGIBLE UNDER I TAX ACT. KINDLY LET ME KNOW HOW MUCH AMOUT OF DONATION PAID IS DEDUCTABLE FROM TAXABLE INCOME

CS,CA F,Numrologi TusharSampat

CS,CA F,Numrologi TusharSampat (Expert)
Follow

17 July 2014 to whom u have paid u need to check u/s 80g and u also need donee's pan number

CA Pooja Agarwal

CA Pooja Agarwal (Expert)
Follow

17 July 2014 How much deduction will I get if I donate?
Firstly, a taxpayer claiming deduction under section 80G should find out the donation amount that qualifies for the deduction. He has to compute the actual donation with reference to the qualifying amount. For this purpose, donations can be broadly divided into two categories:

1. Donations to private trusts

Step 1: Find out the qualifying amount

The qualifying amount under this category will be lower of the the following two amounts:

a) The amount of donation

b) 10 per cent of the gross total income as reduced by all other deductions under Chapter VI-A of the Income Tax Act such as 80C (PPF, LIC etc.), 80D (mediclaim), 80CCC (pension schemes etc.

For example, a taxpayer named Laxmi Sharma has taxable salary of Rs 500,000. He has deposited Rs 70,000 in Public Provident Fund and Rs 60,000 in his company provident fund. He donates Rs 45,000 to CRY (Child Relief & You) trust. Presuming he has no other income, his taxable income will be computed as under:

Gross salary Rs 500,000
Less: Deduction under section 80C restricted to Rs 100,000
Gross total income (before 80G) Rs 400,000

After making donation to CRY, his qualifying amount for 80G will be:

Actual amount of donation Rs 45,000
10% of Gross total income as computed above Rs 40,000 whichever is lower

Since 40,000 is lower, the qualifying amount will be Rs 40,000

Step 2: Find out actual deduction
The next question that arises is how much would be the actual deduction? In the case of donations to private trusts, the actual amount of donation would be 50 per cent of the qualifying amount.

Therefore, in the example given above, since the donation is made to a private trust, the deduction will be 50 per cent of the qualifying amount ie 50 per cent of Rs 40,000 = Rs 20,000.

So,

Gross total income (Before 80G) Rs 400,000
Less: deduction under section 80G Rs 20,000
Total income (taxable income) Rs 380,000

Step 3: Check upper limit
Finally, the deduction under section 80G cannot exceed your taxable income. For example, if your income before deduction is Rs 3 lakh and if you have given donation of Rs 5 lakh to the Prime Minister’s National Relief Fund, please do not expect to claim a loss of Rs 2 lakhs. Your income will be NIL (Rs 3 lakh – Rs 3 lakh). The deduction will be restricted to the amount of your income.

ii) Donations to trusts/funds set up by the Government
In this category, the entire amount donated i.e. 100 per cent of the donation amount is eligible for deduction. There is a long list of 21 funds/institutions/purposes for which donations given would qualify for 100 per cent eligibility. Notable among this list are:

- The National Defense Fund

- The Prime Minister’s National Relief Fund

- Any fund set up by the State Government of Gujarat for earthquake relief

The funds that figure in this long list are all set up by the Government. Private Trusts do not figure in this list.

Thus, in this category of donations, the ceiling of 10 per cent of the gross total income as reduced by all other deductions under Chapter VI-A of the Income Tax Act does not apply.

In the above example, if instead of donating to CRY, had the donation been given to say, The Prime Minister’s National Relief Fund, then the calculations would have different as shown below:

Gross Total Income (Before 80G) Rs 400,000
Less: Deduction under section 80G Rs 45,000
Total Income (Taxable Income) Rs 355,000

Message likes : 1 times

Upgrade to CAclubindia Pro. Subscribe Now!