Section 80G & 80GGC

Contributions made to certain Relief Funds and Charitable Institutions (80G):

• Contributions made to certain relief funds and charitable institutions can be claimed as a deduction under Section 80G of the Income Tax Act.
• This deduction can only be claimed when the contribution has been made via cheque or draft or in cash.
• In-kind contributions such as food material, clothes, medicines etc. do not qualify for deduction under section 80G.
• The donations made to any Political party can be claimed under section 80GGC.
• The limit of deduction under section 80G / 80GGC for donations made in cash is Rs 2,000 only.

Percentage of deduction on contribution made to different Charitable institutes:

Adjusted Gross Total Income:

Adjusted gross total income is the gross total income (sum of income under all heads) reduced by the aggregate of the following:

1. Amount deductible under Sections 80CCC to 80U (but not Section 80G)
2. Exempt income
3. Long-term capital gains
4. Income referred to in Sections 115A, 115AB, 115AC, 115AD and 115D, relating to non-residents and foreign companies

Qualifying limit = 10% of Adjusted Gross Total Income (i.e. All donations covered under (C) and (D) above, can be allowed upto 10% of Adjusted GTI)

Mr. Shiva aged 58 years, has gross total income of Rs.7,75,000/- comprising of income from salary and house property. He has made the following payments and investments:

1. Premium paid to insure the life of her major daughter (policy taken on 1.4.2018) (Assured value Rs 1,80,000) – Rs. 20,000.
2. Medical Insurance premium for self –  Rs.12,000; Spouse – Rs. 14,000.
3. Donation to a public charitable institution Rs. 50,000 by way of cheque.
4. LIC Pension Fund – Rs. 60,000.
5. Donation to National Children’s Fund – Rs. 25,000 by way of cheque
6. Donation to Prime Minister’s Drought Relief Fund – Rs. 25,000 by way of cheque.
7. Donation to approved institution for promotion of family planning – Rs. 40,000 by way of cheque
8. Deposit in PPF – Rs. 1,00,000

Compute the total income of Mr. Shiva for A.Y. 2025-26 if he exercises the option of shifting out of the default tax regime provided under section 115BAC(1A).

Solution:

Computation of Total Income of Mr. Shiva for A.Y. 2025-26:

Working Note: Computation of deduction under section 80G:

Explanation for Deduction under Section 80G (Mr. Shiva – AY 2025–26):

Adjusted Total Income (ATI) is calculated by reducing the deductions under Chapter VI-A (except Section 80G) from Gross Total Income.

• Gross Total Income (GTI) = ₹7,75,000
• Less: Chapter VI-A deductions (excluding 80G)
• Section 80C: ₹1,50,000 (restricted limit)
• Section 80D: ₹25,000 (restricted limit)
• Total = ₹1,75,000
• Adjusted Total Income (ATI) = ₹7,75,000 − ₹1,75,000 = ₹6,00,000
• Qualifying limit for certain 80G donations = 10% of ATI = ₹60,000

Step 1: Donations eligible for 100% or 50% deduction without limit:

• ₹25,000 to National Children’s Fund (100%) → ₹25,000
• ₹25,000 to PM’s Drought Relief Fund (50%) → ₹12,500
• Total deduction (without limit): ₹37,500

Step 2: Donations subject to qualifying limit of ₹60,000:

• ₹40,000 to an approved institution for family planning (100%) → fully allowed
• Balance limit = ₹60,000 – ₹40,000 = ₹20,000
• ₹50,000 to a public charitable institution (50%) → restricted to 50% of ₹20,000 = ₹10,000
• Total deduction (with limit): ₹40,000 + ₹10,000 = ₹50,000

Final Deduction under Section 80G = ₹37,500 (without limit) + ₹50,000 (with limit) = ₹87,500

The total donations eligible under the qualifying limit (10% of Adjusted Total Income = ₹60,000) must be allocated in order.

As per the rule, donations eligible for 100% deduction are adjusted first against this limit.

So, the ₹40,000 donation to the family planning institution (eligible for 100%) is first deducted.

This leaves only ₹20,000 remaining under the ₹60,000 cap.

Since the public charitable institution is eligible for only 50% deduction, the allowable deduction is 50% of ₹20,000 = ₹10,000, even though the total donation made was ₹50,000.

Important Note for Learners: A Common Mistake in Section 80G Calculation

When calculating the deduction for donations subject to the 10% qualifying limit, a frequent error occurs when the limit is not enough to cover all the donations made in that category. The order of operations is critical.

Scenario:

• The remaining qualifying limit is ₹20,000.
• A donation of ₹50,000 was made to a fund eligible for a 50% deduction (e.g., a Public Charitable Trust).

The Common Mistake ❌

Many learners first calculate the potential deduction on the full donation amount and then attempt to cap that result at the available limit.

• Incorrect Process: This method calculates the potential deduction on the full donation (50%×₹50,000=₹25,000) and then incorrectly caps this result at the remaining limit, leading to an erroneous claim of ₹20,000. This approach is wrong.

The Correct Method ✅

The rules require that the eligible portion of the donation itself is determined first by capping it at the available limit. Only then is the percentage applied to that capped amount.

• Correct Process: The donation amount is capped at the available limit. Therefore, the amount of the donation that can be considered for deduction is restricted to ₹20,000. The actual deduction is then calculated based on this considered amount.
• Calculation: 50%×₹20,000=₹10,000.

Rule of Thumb to Remember: Cap the Donation Amount First, Not the Final Deduction.

The 10% qualifying limit must always be applied to the actual amount donated to determine the eligible portion before the 100% or 50% deduction rate is applied.

Deductions in respect of Contributions given by any Person to Political Parties (Sec 80 GGC):

• This provides for deduction of any sum contributed in the Previous Year by any Person to a Political Party or an Electoral Trust.
• It will not be available to a Local Authority and an Artificial Judicial Person.
• No deduction shall be allowed in respect of any sum contributed by way of cash.

Amount of deduction available under section 80GGC:

• 100% of the amount donated or contributed to the political parties or electoral trusts are allowed as deduction under section 80GGC.
• However, the deduction cannot exceed the individual’s total taxable income.
• The mode of donation or contribution to the political party or electoral trust should never be in cash.
• Therefore donations only made through authentic banking channels like online transfers, debit cards, internet banking, and cheque are eligible for this tax deductions.