The Government of India has made several provisions in the Income Tax Act for offering tax relief to donors whose contributions help in promoting social welfare activities. Our organisation has obtained the benefits of section 80G and 35AC of the Income Tax Act, 1961.
Benefit of Section 80G
Blind Persons’ Association is registered under section 80G(5)(VI) of the Income Tax act, 1961. Only a few government funds such as the Prime Minister’s Relief Fund, Nehru Children’s Fund etc. are registered under section 80G. All other organisations, NGOs in particular, are registered under section 80G(5)(VI) of thesaid Act. Under this section 50% of your donation to our fund shall qualify for exemption from income tax. Moreover, the qualifying amount must not exceed 10% of your gross income. While computing the deductible amount under section 80G, first the aggregate of the sums donated has to be found out. Then 50% of the donated amount has to be found out and it should be limited to 10% of the gross total income. If such amount is more than 10% of the gross total income, the excess will be ignored.
Let us make it clear through an example. Suppose, your gross annual income for the current financial year (2010-2011) is Rs. 4,00,000. You donate to our Association the sum of Rs. 1,00,000. In this case 50% of your donated amount, i.e. Rs. 50,000 will qualify for tax exemption. However, this qualifying amount must not be above 10% of your total income, i.e. Rs. 40,000. So, in this instance, the actual amount eligible for deduction from income will be Rs. 40,000.
The ultimate tax benefit depends on the rate of income tax. In this particular case the tax rate is 10%. The actual benefit in terms of tax will be Rs. 4,000. The qualified amount of Rs. 40,000 should be entered in the section devoted to deductions under Chapter VI-A in the income tax return form. This facility is available to all taxpayers including individuals, companies and any other organisation. The money receipt should contain the order number and date.
Benefit of Section 35AC
The Government of India approves of certain project or schemes for the benefit of section 35AC of the Income Tax Act, 1961 after a careful scrutiny by the National Committee for Promotion of Social & Economic Welfare, Dept. of Revenue, Govt. of India, North Block, New Delhi – 110001. Under section 35AC, organisations having income from business or profession can get 100% deduction. Individual assessees enjoy the same benefit under section 80GGA of the Income Tax Act, 1961.
This tax facility is project-specific. Donation made exclusively for the Braille and library development project of Blind Persons’ Association at Vidyapalli, Malancha-Mahinagar, Kolkata – 700145 is eligible for the benefit of 35AC.
Facility of section 35AC is available to assessees who have income under the head Business or Profession. For the assessees who do not have income from business or profession, section 80GGA provides for deduction on donations made to eligible projects under section 35AC. 100% deduction is available under section 80GGA, subject to the available gross total income under section 80A. Therefore, unlike section 35AC, deduction under section 80GGA cannot be carried forward in the form of losses to next year . It implies that contribution cannot exceed the gross total income of the assessee according to section 80A.
In the illustration above, the sum of Rs. 1,00,000, if donated under section 35AC (or section 80GGA, as the case may be) for the Braille press and library development project of Blind Persons’ Association, will be entirely eligible for deduction from taxable income. Since the tax rate is 10% for the current year, the tax benefit will be Rs. 10,000 (10% of Rs. 1,00,000). If it is under section 80GGA, entry in the income tax return form should be similar to 80G, i.e. in the column for deductions under Chapter VI-A. Under section 35AC the certificate issued by the donee organisation must be in form 58A. The same certificate will be sufficient for provisions of section 80GGA. If the donation is in kind, the certificate should be in form 58B.