Understanding how to calculate the 80G limit is crucial for taxpayers who donate to charitable organizations and want to claim tax benefits. Section 80G of the Income Tax Act provides deductions on donations, but the extent of the benefit depends on various factors like the type of donee and the applicable percentage limits. Knowing how to calculate the 80G limit correctly helps in maximizing tax savings while ensuring compliance with tax laws. This blog will guide you through the detailed process of determining the eligible deduction under Section 80G.
What is Section 80G?
Section 80G is a provision of an Income Tax Act. An individual or company donating to charitable trust, can get donation benefits under section 80G. The purpose of this section is to support entities that are engaged in social or cultural development activities. As donations under section 80 are exempt from Income Tax, It attracts more donors to help people.
Identify the Type of Donation Under Section 80G
100% Deduction (No Limit): Full tax deduction for donations to funds like the National Defense Fund and Prime Minister’s National Relief Fund without any upper cap.
50% Deduction (No Limit): Half of the donated amount is deductible for funds like the Prime Minister’s Drought Relief Fund and National Children’s Fund, with no limit.
100% Deduction (Limited to 10% of Income): Donations to government or local authorities for family planning or the Indian Olympic Association qualify for full deduction, but only up to 10% of Adjusted Gross Total Income (AGTI).
50% Deduction (Limited to 10% of Income): Donations to government or local authorities for charitable purposes get a 50% deduction, capped at 10% of AGTI.
A Step-by-Step Guide on How to Calculate 80G Limit
Step 1: Check if the donation qualifies under Section 80G
Ensure you donate to an organization or fund approved under Section 80G of the Income Tax Act before claiming any tax deduction. Only contributions to eligible charitable trusts, government funds, or institutions qualify for tax benefits. Remember, cash donations over ₹2,000 don’t qualify for deduction; make payments via cheque, demand draft, or online transfer.
Step 2: Identify the applicable deduction category
Donations under Section 80G fall into four categories: 100% deduction (without limit), 50% deduction (without limit), 100% deduction (subject to 10% of AGTI), and 50% deduction (subject to 10% of AGTI). You need to determine under which category your donation falls. Some funds allow a full tax deduction, while others permit only half of the donated amount to be deducted. Additionally, some deductions are restricted based on your income level.
Step 3: Compute Adjusted Gross Total Income (AGTI)
To determine the limit on deductions, calculate Adjusted Gross Total Income (AGTI) using the formula:
AGTI = Gross Total Income – Exempt Incomes – Long-Term Capital Gains – Short-Term Capital Gains (Taxed at 10%) – Deductions (except 80G).
AGTI represents your taxable income after considering certain exemptions and deductions. It is essential to compute AGTI correctly, as some donations have a deduction cap based on 10% of AGTI.
If your donation falls into the category where deductions are subject to 10% of AGTI, you need to calculate this limit. Only donations up to 10% of AGTI qualify for deductions, and any amount beyond this threshold cannot be claimed as a tax benefit. For instance, if your AGTI is ₹10,00,000, the maximum eligible donation under this category would be ₹1,00,000.
Step 5: Finalize the deduction amount
Once you have identified the eligible deduction percentage (either 100% or 50%) and applied the 10% AGTI limit (if required), you can now compute your final deduction. For example, if your eligible donation is ₹50,000 and it qualifies for a 50% deduction, you can claim ₹25,000 as a tax benefit. This final amount should be included while filing your Income Tax Return (ITR).
Eligibility to Claim Deduction Under 80G
An individual and a company both are eligible to claim deduction under 80G for the donations that are made to charitable organizations.
Following persons are eligible to claim deduction under section 80G;
Individuals
Hindu Undivided Family
Non-Resident Indian
Firms
Companies
Key Takeaways
Donations must be made to approved institutions, trusts, or societies.
Cash donations above ₹2000 are not eligible for deduction.
The deduction can only be claimed if the donation is made in the same financial year
Conclusion
Understanding how to calculate the 80G limit is essential for maximizing tax benefits on charitable donations. By identifying the right deduction category and applying the 10% AGTI rule where necessary, taxpayers can ensure accurate tax claims. Keeping proper records and making donations to approved institutions are key to availing benefits under Section 80G. Always check the eligibility criteria and include the deduction while filing your Income Tax Return (ITR).
The maximum deduction depends on the type of donation. Some donations qualify for a 100% deduction with no limit, while others are restricted to 50% or 10% of Adjusted Gross Total Income (AGTI).
2. Can I claim 80G deduction for cash donations?
No, cash donations above ₹2,000 are not eligible for deduction. Payments must be made through cheque, demand draft, or online transfer.
3. Are all charitable donations eligible for tax deduction under 80G?
No, Only donations made to government-approved institutions and funds qualify for tax benefits under Section 80G.
4. Can companies claim tax deductions under Section 80G?
Yes, donations made by individuals, companies, firms, HUFs, and NRIs are eligible for deductions under 80G, provided they are made to approved organizations.
5. How do I claim the 80G deduction in my Income Tax Return?
You need to mention the eligible deduction under the appropriate section while filing your Income Tax Return (ITR) and keep donation receipts as proof for verification.
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