Can You Claim Tax Benefit On Diwali Donations? The Surprising Answer

With the onset of the festive season, many individuals may choose to extend their celebrations through acts of charity. From a tax perspective, donations made to approved charitable institutions can indeed qualify for deduction under Section 80G of the Income-tax Act, 1961 (hereinafter referred to as 'the IT Act'), subject to certain conditions.

The key requirement is that the donation must be made in monetary form through cash (up to Rs. 2,000), cheque, draft, UPI, or other electronic modes. Donations exceeding Rs. 2,000 in cash or those made in kind (such as food, clothes, or gifts) do not qualify for deduction.

Moreover, the recipient organisation must hold a valid 80G approval, and the donor must obtain Form 10BE, which the institution is required to issue after filing its annual Form 10BD with the Income-tax Department.

"Donations made towards clothes, food, or other goods are not eligible for this tax benefit. Individuals must have some essential documents on hand, such as Form 10BE (Certificate of Donation), as Section 80G of the Indian Income Tax Act typically applies where tax benefits on donations, including those donated during Diwali, are claimed. This is the required documentation in order to claim the deduction," said CA (Dr.) Suresh Surana.

By May 31st of the financial year after the donation was made, the institution you donated to must submit a "Statement of Donations" (Form 10BD) to the Income Tax Department and thereafter provide you with a Form 10BE Certificate. This form comprises your details, like donation amount and PAN.

The second important document is the donation receipt, which is a stamped document that contains the institution's name and address, PAN, Section 80G registration number, the amount contributed, the date and time of the donation, and your name.

"It is also important to note that Section 80G benefits are available only under the old tax regime. Individuals opting for the new regime under Section 115BAC cannot claim deductions for charitable donations. Therefore, taxpayers seeking to optimise tax benefits through festive giving should review whether continuing under the old regime is more advantageous in their circumstances," CA (Dr.) Suresh Surana further added.

The extent of deduction available depends on the category of the donee institution. Donations are eligible for either a 100% or 50% deduction, with or without the 10% cap on adjusted gross total income (AGTI).

For instance, contributions to the PM CARES Fund qualify for a 100% deduction without limit, while donations to most recognised trusts or NGOs or charitable institutions are eligible for 50% deduction subject to the 10% cap, says CA (Dr.) Suresh Surana.

Donors should ensure that receipts contain the trust's name, address, PAN, registration number under Section 80G, payment details, and the donor's name and PAN, as these are required to substantiate the claim during tax filing. The details provided by the charitable organization in its Form 10BD statement will be evaluated against your claim by the tax department. For your records, always keep your donation receipt and Form 10BE securely.

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