Income Tax Exemption in India: How does it work?

in #tax5 years ago (edited)

Most of the countries around the world has the set rule of paying taxes; however, the tax rules may differ. In India, income tax is levied on individuals and businesses that has an income above a certain limit. It is an annual process wherein individuals – salaried or self-employed and businesses have to contribute a certain amount from their income to the government. These funds are then utilised by the government for developmental and security purposes such as constructing hospitals, schools, welfare centres, roads, maintenance of defence forces and the like. Paying taxes on time is a fundamental duty of every citizen who fall in the taxable bracket but the amount varies depending upon our income level, age, and gender. However, there is also a tax deductions clause that reduces the taxable income of a person.

Support a charity to save tax in a noble way!.png

How can you avail tax deduction?

For the welfare of the citizens, the Government of India has made a provision wherein one can receive exemption from paying taxes based on certain investment criteria. Individuals investing on house rent, children education allowance, housing loan, medical insurance and the like can avail tax deductions on their taxable income. Additionally, people contributing funds towards a social cause can also avail tax benefits under Section 80G. In order to encourage people to support charitable activities and enhance the sense of giving back to the society, the Government has made the provision of tax exemption donation. As per this section of income tax, if a person donates to any registered non-governmental organisations (NGO) in India, then he can receive tax relief for the amount he contributed as donation. Based on the type of NGO and its cause, the donor can either get 100% or 50% exemption on the donated amount based on a pre-decided slab and criterions set by the Income Tax Act.

Are all contributions made to NGO eligible for 80G benefits?

It is important to verify about the non-governmental organisations (NGO) in India you are considering for your donation because not all NGOs can give you the benefits of Section 80G. Here are some of the mandatory criteria that an NGO needs to meet to make the provision of tax exemption donation available for their donors:

i. The NGO must be a registered non-profit organisation under the Indian Trusts Act;
ii. The NGO must be registered under the Income Tax Act of India to receive donations from within the country, and it should also be registered under Foreign Contribution Act to accept donations from foreign countries;
iii. Since the percentage of tax deduction vary for different categories of NGOs, all NGOs should clearly communicate on the percentage of tax exemption the donor will be entitled to i.e. 50% or 100%;
iv. The NGO must provide a receipt and a tax exemption donation certificate for the amount you have donated.

Choose the cause you want to support and save tax too!

It is totally a personal choice to select the cause you want to support; and reportedly, there are about 3.2 million registered non-governmental organisations (NGO) in India. For instance, if you are a pro-environmentalist, you can choose any of the environment-centric NGOs. Similarly, if you strongly identify with health and education of children, you can support child-centric NGOs such as The Akshaya Patra Foundation that provides free school meals to more than 1.8 million children on each school day across India.

Your choice could be any, what’s significant is while saving tax you also become a part of the solution for several critical issues obstructing the progress of the society.

Disclaimer: Each of the above-mentioned tax exemption plans/investments has its own terms and conditions. Hence, it is advised to understand the respective tax exemption clauses prior to making an investment or a claim.

Author Profile:

The Akshaya Patra Foundation is an Indian NGO implementing the Mid-Day Meal Programme along with several child-centric initiatives. Your support to Akshaya Patra can potentially improve lives of millions of children across India and also avail you tax exemption.