Analysis: Section 80G of Income Tax Act

Analysis: Section 80G of Income tax Act
Introduction: Donations to Shri Ram Janmbhoomi Teerth Kshetra made eligible

for Section 80G IT Act deductions by centre
After decades of legal battle, on November 9, 2019, the Supreme Court had ruled that the
disputed site at Ayodhya should be handed over for the construction of Ram Mandir. In
February, a fifteen member Shri Ram Janmbhoomi Teerth Kshetra Trust was set up to see
over the construction of the Ram Temple in Ayodhya. Later, on 8 th May 2020, the Central
Board of Direct Taxes (CBDT) notified Shri Ram Janmbhoomi Teerth Kshetra Trust as a
place of public worship and a place of historic importance for the purpose of Section 80G of
the Income Tax Act from the year F.Y. 2020-2021.
Section 80G of the Income tax Act permits donations made to specified charitable institutions
such as mosque, temple, or church, and Relief Funds as a deduction of the gross total income
before reaching at the taxable income. The effect of the notification of Central Government is
such that the donations made to Shri Ram Janmbhoomi Teerth Kshetra Trust will be eligible
for deduction under section 80G of the Income Tax act, 1961. Deductions under Section 80G
can be claimed only if the donations are made to prescribed funds, thus the Central
Government, by the means of the notification dated 8th May 2020, prescribed the Ram
Janmbhoomi Teerth Kshetra Trust as eligible for the purpose of Section 80G.
Under this, 100% of the donation made by the taxpayers to the Trust would be eligible for the
deduction while the computation of the taxable income, subject to maximum limit of 10% of
gross total income. To further understand the nitty-gritty of Section 80G of Income Tax Act,
this article briefly discusses its salient features and supplement it with a critical analysis.
What is the Section about?

Paying taxes has always been a touchy subject for people from every income group. Be it a
middle-class employee or a huge businessman, people are always looking for ways to save
taxes. Income Tax Act give may such opportunities, to save the tax, in form of Section 80C,
80D, and 80G. this article is a brief analysis of Section 80G.
Section 80G of the Income tax Act allow for the donations made to the prescribed charitable
institutions or relief funds to be deducted from the gross total income before arriving at the
taxable income. Donations to any kind of charitable institution or relief fund are not eligible
under this section, but only to the funds specifically prescribed for the purpose of this section.
Also, even on donations to notified entries, claims to 100% deductions are only applicable to
the donations to a specified list.
Salient Features
Persons eligible to claim deductions under Section 80G
All types of taxpayers such as individual, company, association of persons, firm, Hindu
undivided family, etc. are eligible to claim deductions under Section 80G.
Donations or contributions that qualify for deductions under Section 80G
Any donation made to foreign institutions or political parties is not eligible for the purpose of
this Section. The taxpayers can only avail the benefit of deduction on the donations which are
made to specified list of charitable institutions or relief fund. There is a prescribed list of
institutions and fund specifically for the purpose of Section 80G.
Under this Section, the donations or contributions are divided into four groups:
1. Donations that are qualified for 100% deduction without qualifying limit.
2. Donations that are qualified for 100% deduction subject to 10% of the adjusted gross
total income.
3. Donations that are qualified for 50% deduction without qualifying limit.
4. Donations that are qualified for 50% deduction subject to 10% of the adjusted gross
total income.
Various funds are specified under the above four groups and the deductions can be
claimed accordingly.
Thus, the qualifying limit in Section 80G is the lower of the following two amounts:
 Depending upon the type of institution to which donation is made, 100% or 50% of
the donation amount; or
 10% of the adjusted gross total income;
Eligible mode of payment
The claim of deduction under Section 80G is only available if the claimant has made the
donation through an acceptable mode of payment. Thus, deduction under Section 80G is only
available if the donation is made, to the prescribed funds, by the means of cash or draft or
cheque. However, with effect from the assessment year 2018-2019, maximum cash
contribution allowed as a deduction under Section 80G is restricted to INR 2000/-.
Any type of donation which are not made in the prescribed mode of payment, i.e., through
cheque, draft, or cash, will not be eligible for deductions under this section. Thus, donations
of clothes, food material, medicine, etc. are not eligible for the deduction under Section 80G
of the Income Tax Act.
Donations without upper limit
In case the ‘without upper limit’ clause is applicable to the donation made to an entity, the
donor can claim either 50% or 100% of the donation amount without any other limitation.
National defence Fund and Prime Minister’s National Relief Fund are some examples of the
funds specified by the Central Government on which the ‘without upper limit’ and 100%
deduction clauses are applicable. Thus, an individual is eligible to claim 100% deduction on
the amount donated.
Trust funds like Prime Minister’s Drought Fund and Jawahar Lal Nehru Memorial Fund
allow the donor to claim only 50% of the amount donated as deduction.
Donations with upper limit
in cases where ‘with upper limit’ clause is applicable, deductions can be claimed for either
100% or 50% (whichever is applicable to the respective institution) or 10% of the gross
adjusted income of the individual. Examples are donations made to government or any local
authority for promotion of family planning, or for repair or renovation of any notified temple,
mosque, gurudwara, church, or any other religious place, etc.
Gross adjusted income is calculated as gross total income minus (1) all exempted income, (2)
long term capital gains, (3) all deductions under Section 80C to 80U except for 80G.
Documents required
In order to avail the deduction, one must provide the standard receipt issued by the trust or
the donee as a proof of the donation made. the receipt must contain the name, address, Pan
Number of the trust, the registration number of the trust, name of the donor and amount
donated, written in figures and words.
Critical Analysis
Section 80G of the Income Tax Act provides for claim of deduction on the amount of
donations made to specified charitable trusts and relief funds. While this is an ingenious way
of encouraging donations to the prescribed charitable funds, it also opens up various
possibilities of tax fraud and money laundering. While, everyone cannot be accused of
misusing the provisions of this section, there are certain people who do not actually make the
donations for which they claim deductions and save thousands of tax money. The trust funds
and charitable institutions return the donation amount in cash and issue false receipts to the
taxpayer, thus giving him a false proof of payment and assisting him in claiming deductions
for the amount which he did not pay. This also helps the charitable institutions in money
laundering as they are able to convert huge amounts of unaccounted for cash into legitimate
money which they supposedly acquired though donations. With every positive aspect of a
legislation there is also a negative aspect but this does not imply that the legislation is
assisting with the illegal work of the people. The government is required to strengthen the
monitoring system and crack down on such money laundering techniques in order to protect
public interest.
Conclusion
It can be concluded that Section 80G of the Income Tax Act can ultimately help the taxpayers
save income tax. Following points must be kept in mind in order to avail benefit under
Section 80G:
 Only the donations made to the prescribed funds and institutions are allowed as
deduction from gross total income before arriving at the taxable income, under
Section 80G of the Income Tax Act.
 Any person or assessee who makes an eligible donation can avail this deduction.
 Contribution must be made via cheque, or draft, or cash. The limit on cash donations
is INR2000/-.
 The amount that can be claimed as a deduction is subject to the entity to which the
donation is made.
 It is important to have a receipt issued by the trust, having the name, address, and
PAN of the trust and the name of the donor and the amount donated.
Subject to the above few technicalities, Section 80G is a very ingenious way of encouraging
donations to the prescribed charitable institutions and trust funds. There is just a requirement
of the betterment of the money laundering detection by the government to stop the use of this
section to evade taxes rather than save taxes.

Analysis: Section 80G of Income Tax Act

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Analysis: Section 80G of Income tax Act

Introduction: Donations to Shri Ram Janmbhoomi Teerth Kshetra made eligible

What is the Section about?

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