Donations are a commonly used route by an individual to do some good for society and at the same time claim some additional tax benefits in the process.
Arnav Pandya ( more)
Financial Advisor & Writer
Donations are a commonly used route by an individual to do some good for society and at the same time claim some additional tax benefits in the process. The process of undertaking the donation does not involve something very different from some other expense. There is an important aspect that has to be considered which are that there are several conditions that need to be fulfilled if this has to qualify for the required tax benefit. This is the reason why there has to be the necessary focus on these details so that they are not denied any benefit.
Donation: The first point to understand is the meaning of the term donation because this will ensure that the basic detail is well understood. The generic and natural meaning of the term has to be considered because this will give an idea of what is covered and what is actually excluded when the term is mentioned. Donation is a situation where a person gives money to another without any material return. This amount is given voluntarily and there is no consideration in the process. These conditions are very important because they determine whether an action will be covered under donation or not.
There are several donations that might be given by an individual like a donation to get admission to a school or college and in such a situation this will not be actually covered by the benefit of the tax deduction. This will take place because it does not fulfill the conditions that are present for the donation in the true sense which is that there has to be no consideration or anything material received in return.
Receipt required: The individual has to ensure that the donation is accompanied by a receipt in return so that there is a clear way in which the donation details can be substantiated. The receipt will have various details mentioned like the tax deduction details of the entity accepting the donation. At the same time various details of the individual taxpayer including the permanent account number and the details of the payment like the cheque number and so on would be present. This will enable the tax payer to claim the right amount of benefit at the time of filing of the income tax return.
There is an exception to this situation when there is a situation where the individual donate some money through their employer. Often in times of calamities or some other condition the employer collects donation from various employees and then puts this directly into some specified fund like National Defence Fund or Prime Minister’s National Relief Fund or Chief Ministers Relief Fund. In such a situation the employer can issue a certificate to the employee giving details of the amount contributed by the employee and then the benefit can be claimed based on this certificate. There is no need to undertake any extra efforts in this situation to get the benefit.
Restriction not present: It is also easier to undertake the donation process in the sense that there is no requirement that the amount contributed to this purpose has to come only from a specific area or source. There are sometimes restrictions with respect to the amount invested saying that the amount has to come from the income chargeable to tax. In this case the donation can come from income that is outside the term chargeable to tax so it can even be made out of tax free income that the individual has earned. There is also no need for the amount to be from the amount earned in the previous year and since this is the case the individual is free to make the investment from whatever funds that they have and which they feel comfortable with.
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