Charitable contributions and donations form an essential component of your social responsibility. The Indian culture constitutes donation as an integral part and the Indian government too recognises it till date accordingly. Charitable contributions are essential to bridge the sharp gap between the haves and have-nots among two different sects of people.
This article will highlight the important aspects of tax saving through charitable donations. A clear understanding of these aspects will enable you to save on your taxes considerably and maximise your overall income, which can be used further.
Chief tax benefits for charitable contributions
- Tax deductions u/s 80G of the IT Act
Section 80G of the Income Tax Act allows special tax deductions to those who donate to authorised charitable organisations. You can claim these deductions both as an individual or on behalf of any company. The deduction percentage can range between 50% and 100% of the total donated amount. However, if you wish to save your taxes under this category, you have to ensure that the concerned organisation is aptly eligible for it.
- Tax exemption u/s 35AC of the IT Act
This section offers exclusive tax benefits to donating companies who are willingly contributing to eligible and approved charitable organisations. You can claim a complete tax exemption of the entire contributed amount, ensuring that the concerned organisation must be engaged in activities like rural development, promoting health and education, etc. and falls under the category as per the tax laws.
- Donation of appreciated assets
You can significantly optimise your total tax savings by donating your appreciated assets like real estate, MFs, stocks, etc., lowering your tax liability in the process. During such donations, you become eligible for claiming a tax deduction as per the current market price of the concerned donated assets. You can claim it under both Sections 35 AC and 80G. Through these donations, you can significantly reduce your overall exposure to the existing market volatility by portfolio diversification, irrespective of the market condition.
- Creation of charitable trust
You can further reduce your tax burden by creating a charitable trust, with specific objectives of social development like improvement in healthcare, education, etc. These donations are eligible for tax deductions u/s 80G of the IT Act. It even allows reduced stamp duty rates, wealth tax exemption, etc.
- Donations towards political parties
This is eligible for 100% tax deductions u/s 80GGC of the IT Act, without any restricted capping on the donated amount. However, you must ensure that such deductions are not applicable for cash contributions and the concerned party must be duly registered under the Election Commission of India.
- CSR or Corporate Social Responsibility
This is a legal necessity for all Indian companies possessing a net worth of INR 500 Cr. or above/ a turnover of INR 1000 Cr. or above/ a net profit of INR 5 Cr. or above. They have been mandated to expend a minimum of 2% of their average net profit accumulated in the preceding 3 years exclusively on CSR activities. It includes activities like environmental sustainability, healthcare, educational development, etc. These contributions qualify for tax reduction u/s 80G of the IT Act. Moreover, if any income is generated through these activities, it is also tax exempted.
- Donations towards charitable organisations
This qualifies for tax benefits u/s 80GGA of the IT Act. It is exclusively applicable for donations and contributions towards rural development and scientific research activities.
Conclusion
You got a glimpse of how social donations and charitable contributions aid your tax-saving process. Utilising these strategies, you can reduce tax liabilities and enhance your overall income.
