Section 80G(5): The Rule That Decides Which Donations Get You Tax Deductions

Charity and philanthropy play an important role in shaping a better society. To encourage individuals and businesses to contribute to recognized charitable organizations, the Government of India provides tax benefits under Section 80G of the Income Tax Act, 1961. Within this section, Section 80G(5) holds special significance as it clearly lays down the conditions under which deductions can be claimed.

The essence of this provision is simple – if you make eligible donations to approved institutions, you get the dual benefit of contributing to society and enjoying tax savings. However, no deduction shall be allowed under this section in respect of any donation that does not meet the criteria defined by the Act. This makes it crucial for taxpayers to understand the fine details of Section 80G(5).

What is Section 80G(5) of Income Tax Act?

Section 80G(5) is a specific clause that outlines the eligibility criteria for claiming deductions on donations. While the Income Tax Act allows a tax deduction for contributions to certain relief funds & charitable institutions, not every contribution qualifies.

According to this section:

• The charitable institution must be approved by the Commissioner of Income Tax.
• The approval must be valid on the date of donation.
• The organization should be registered under Section 12AA (or 12AB in the updated provisions).
• Proper receipts must be issued to the donor.

Thus, Section 80G(5) allows taxpayers to claim deductions for donations made to specified charitable institutions while ensuring transparency & accountability.

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Key Conditions Under Section 80G(5)

The law has clearly set conditions to prevent misuse of tax benefits. Some of the major requirements include:

1. Institution Registration – The organization must be registered under the Income Tax Act.
2. Proper Utilization of Funds – The donation should be used only for charitable purposes.
3. Receipts & Records – The taxpayer must obtain a valid receipt containing the name, PAN, and registration number of the trust or institution.
4. Mode of Payment – Donations above ₹2,000 should not be made in cash; only electronic or banking channels are allowed."
5. No Deduction Shall Be Allowed Under This Section in Respect of Any Donation – made to organizations not recognized under Section 80G(5).

These conditions ensure that the donations are genuine & reach legitimate entities.

Also Read: Modes of Investment for Charitable & Religious Trusts

Types of Donations Eligible for Deduction

Section 80G broadly categorizes donations into four types:

1. 100% Deduction Without Limit – Donations to the Prime Minister’s National Relief Fund, National Defence Fund, etc.
2. 50% Deduction Without Limit – Contributions to funds like the Jawaharlal Nehru Memorial Fund.
3. 100% Deduction Subject to Limit – Donations to government-approved institutions promoting family planning.
4. 50% Deduction Subject to Limit – Donations to other recognized charities.

Section 80G(5) comes into play by defining which institutions are eligible and which are not.

How Section 80G(5) Helps Taxpayers

This provision is designed to strike a balance between promoting charitable activities & preventing tax evasion. Here’s how it helps:

• Encourages philanthropy by offering tax benefits.
• Ensures that funds go only to approved institutions.
• Allows taxpayers to claim deductions for various contributions made as donations – reducing their taxable income.
• Makes the donation process more accountable and transparent.

Not every donation qualifies for a tax deduction — only contributions to approved funds & institutions do. Wondering if yours makes the cut? 👉 click here

Practical Example

Let’s take an example to simplify:

Ravi donated ₹50,000 to a local trust. However, the trust was not registered under Section 80G(5). In this case, even though the intention was noble, Ravi cannot claim deduction as per Section 80G(5).

On the other hand, if he donates the same amount to a registered & recognized charitable institution, he can claim either 50% or 100% deduction depending on the category.

Documents Required to Claim Deduction

To claim tax benefits under Section 80G(5), a taxpayer must have:

• A valid donation receipt mentioning donor’s name, amount donated, and PAN of the institution.
• The registration number of the charitable organization under Section 80G.
• Mode of payment details (for donations above ₹2,000).

Recent Amendments and Updates

With digitization, the government has tightened compliance norms. Institutions receiving donations must now report details through Form 10BD & issue certificates in Form 10BE to donors. This ensures transparency and reduces the risk of fraudulent claims.

Importance of Section 80G(5) in Today’s Context

The role of charitable organizations is critical in times of natural disasters, health emergencies, and poverty alleviation. By ensuring that only eligible entities qualify, Section 80G(5) helps to deter taxpayers from engaging in any fraudulent activities & directs funds toward genuine causes.

Also Read: Section 12AB of Income Tax Act: Registration, Applicability & Key Provisions

Common Mistakes Taxpayers Make

1. Donating to unregistered institutions.
2. Claiming deductions for cash donations above ₹2,000.
3. Not maintaining receipts or documents."
4. Assuming all charitable donations are eligible.

To avoid these mistakes, always verify the approval status of the institution.

Conclusion

Section 80G(5) of the Income Tax Act plays a vital role in ensuring that tax deductions for donations are properly regulated. While the Income Tax Act allows taxpayers to claim deductions for donations made to specified charitable institutions, no deduction shall be allowed under this section in respect of any donation made to unapproved bodies.

This ensures that the benefits of tax deductions reach genuine institutions working for social welfare while protecting the revenue system from misuse.

If you are planning to donate, make sure the institution is approved & registered. Not only will your contribution help society, but it will also help you save taxes in a legal & transparent manner.

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