On 31st March 2020, the Centre announced that donations to the PM CARES Fund (Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund) will get tax breaks under Section 80G of the tax Act. this could help galvanize contributions to the fund that has been found out to supply relief to persons suffering from the coronavirus outbreak.
The announcement has three key aspects:
One, the PM CARES Fund will get an equivalent tax treatment as available to the Prime Minister National Relief Fund. So, donations to the PM CARES Fund shall be eligible for 100 per cent deduction under section 80G of the tax Act. Further, the limit on deduction of 10 per cent of total gross income shall also not be applicable for donation made to PM CARES Fund.
What this means:
Say, your income is Rs 20 lakh and you donate Rs 2.5 lakh to the PM CARES fund. You get a deduction under Section 80G on your entire donation of Rs 2.5 lakh, and your taxable income reduces to Rs 17.5 lakh (Rs 20 lakh less Rs 2.5 lakh). So, you pay less tax of Rs 78,000 (31.2 per cent of Rs 2.5 lakh).
Two, the Centre has said that the date for claiming deduction under Section 80G has been extended up to June 30, 2020. So, donations made up to June 30, 2020 shall be eligible for deduction from income of FY 2019-20.
What this means:
If you donate, until June 30, 2020, to causes (including the PM CARES Fund) that are eligible for tax write-off under Section 80G, you'll claim the donation as deduction from income of the financial year just gone – that's , FY 2019-20 (the year ended March 2020). you'll claim this deduction while filing your income tax return for FY 2019-20; the maturity for filing this tax return will likely be July 31, 2020, unless extended.
Three, the Centre has clarified that a person , including corporates, paying concessional tax on their taxable income of FY 2020-21 under the new tax regime, can make donations to the PM CARES Fund up to June 30, 2020 and may claim deduction under Section 80G against income of FY 2019-20. Such persons won't lose their eligibility to pay tax within the concessional tax regime for income of FY 2020-21.
What this means:
A number of us might want to shift to the new, optional tax regime that's available from April 2020 for FY 2020-21 and beyond. Under the new tax regime, the rates of tax are lower, but there's no advantage of most tax exemptions and deductions, including Section 80G. Under the present tax regime which will also still be available, the rates of tax are higher, but you get advantage of exemptions and deductions, including Section 80G.
For those choosing the new tax regime, the Centre has set to rest worries regarding their eligibility for the Section 80G benefit on contributions to causes like the PM CARES Fund. it's said that even those that choose the new tax regime in FY 2020-21 and contribute to the PM CARES Fund up to June 30, 2020, can claim deduction under Section 80G against income of the financial year just gone – that's , FY 2019-20 (the year ended March 2020).
Note that until FY 2019-20, there's just one tax regime that permits tax breaks, including Section 80G. So, those choosing the new tax regime from April 2020 won't lose the advantage of lower tax rates on income of FY 2020-21, only because they donated to causes like the PM CARES Fund until June 30, 2020 and claimed the Section 80G tax benefit for FY 2019-20.
Basics of Section 80G
It’s an honest idea to open up your purse strings and provides generously to the fightback against the coronavirus. Your donations can't only help those in need, but it also can reduce your liabilities. The tax benefit under Section 80G allows amounts donated to be deducted from the taxable income. But there are some conditions and restrictions in claiming the tax benefit.
Entity eligibility: You'll get a tax benefit as long as you donate to institutions and funds approved by the govt . This list includes many government and non-government organisations. ask the entity whether the donation qualifies for deduction under Section 80G, and if need be, ask to ascertain its registration certificate. Donations to political parties aren't eligible for tax breaks under Section 80G, but under another provision — Section 80GGC. Also, donations to foreign entities don't qualify for deduction under Section 80G.
Donate money, not in kind: you'll get deduction under Section 80G as long as you donate money. there's no deduction if you concede kind. So, if you would like a tax benefit , donate funds, and not clothes, food items, utensils or such items. Also, donations in cash above Rs 2,000 aren't eligible for deduction under Section 80G. So, if you plan giving quite Rs 2,000, do so in modes aside from cash like cheques, demand drafts and online bank transfers.
Deduction limits: there's no bar on the quantity you'll donate. But there might be limits on the tax write-off you'll get. the quantity qualifying for deduction under Section 80G are often either 100 per cent or 50 per cent, counting on the entity to which donation is formed . The deduction is further limited to 10 per cent of adjusted gross total income in some cases.
Donations to several Government-run entities qualify for 100 per cent tax write-off , while within the case of non-Government entities, usually only 50 per cent of the donation qualifies for deduction. These amounts could also be further subject to the limit of 10 per cent of your adjusted gross total income.
For instance, as recently announced, donations to the PM CARES Fund are eligible for 100 per cent tax write-off without limit.
Adjusted gross total income is your taxable income after taking under consideration deductions aside from Section 80G (such because the Rs 1.5 lakh annual tax benefit allowed under Section 80C), and after reducing another incomes like long-term capital gains.
Here’s an example. Suppose your income for the year from various sources is Rs 20 lakh and you've got invested Rs 1.5 lakh within the PPF that qualifies for deduction under Section 80C. This makes your adjusted gross total income Rs 18.5 lakh. Now, say you give Rs 2 lakh to an eligible entity, donations to which are qualified for tax write-off to the complete extent (100 per cent). But if the donation is subject to the limit of 10 per cent of adjusted gross total income, the deduction you'll claim are going to be restricted to Rs 1.85 lakh (10 per cent of Rs 18.5 lakh).
Claiming deduction:
Employers usually don't take under consideration declarations from employees about Section 80G donations, while computing and deducting their monthly taxes. So, you'll need to claim deduction on the donation at the time of filing your income tax return.
When you donate, invite a stamped receipt. this could include details like the license number, its validity, and PAN of the donee entity, the Section 80G tax break on the donation, the donor name, address, and amount donated. a number of these details will need to be mentioned while claiming the deduction within the income tax return .
Submitting the receipt along side the income tax return isn't mandatory. But it's going to are available handy at a later date if the tax officer asks for proof of donation.
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