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Do you get what you give?
January, 08th 2007

We had earlier provided an overview of the tax relief available against various donations (ranging from 50% to 100% of the donation made) and also the overall relief that would be available to the donor.

This article focuses on other salient issues such as whether or not your employer can take into cognisance the donations made by you while computing the tax deductible against your salary income or whether you need to claim such a relief yourself. If so, in this era of e-returns, what is the way forward.

Let us illustrate. Amit earns a salary of Rs 3 lakh and interest on fixed deposits of Rs 50,000 during FY 2006-07. His donations are: Rs 2,000 towards the Rajiv Gandhi Foundation and Rs 1,000 towards the PMs National Relief Fund; Rs 1,000 towards XYZ institution (approved under Section 80G); Rs 200 per month is deducted from his salary as contribution towards the employers initiative to educate street children. Donations in kind, such as clothes, books and toys worth Rs 3,000 during the Xmas season.

Amits donation to the Rajiv Gandhi Foundation is eligible for 50% relief while his donation to the National Relief Fund is eligible for 100%, thus cumulating to a relief of Rs 2,000. Furthermore, Amit can request his employer to consider tax relief on these donations when taxes are withheld from his salary (Payday Stage).

This is possible only in respect of certain specified donations. CBDTs circular dated November 16, 2006, provides this list in terms of donations made during FY 2006-07. Amit should provide the original donation receipts to his employer.

However, Amits donation to XYZ institution, though eligible for 50% tax relief, can be claimed by him only at the time of filing his tax returns. It is likely that for FY 2006-07, Amit will have to file an e-return. In this case, Amit will have to keep with him the proof of the donation and produce the same when requested to by the tax authorities (such request can be made within 5-7 years).

If the return is also physically filed, the proof of such donation should be attached with the paper return. Amit should obtain from XYZ institution not only the original donation receipt but preferably also obtain a copy of the letter granting registration for the purpose of 80G to XYZ institution.
 
Amits contribution to his employers initiative to educate street children will qualify for tax relief only if this scheme/ fund is approved under Section 80G. It is possible that Amits employer remits contributions collected from various employees to an approved institution/ scheme.

In this case, it is the employer who can claim the tax relief as the donation receipt would be in its name. Presently, it is not possible for the employer to pass on this relief to the employee, in all cases.

In some instances, however, if the employer has made a donation through a consolidated cheque, based on the certificate issued by the employer, the employees can claim tax relief under Section 80G. Amit should see whether he is eligible for any such relief.

Donations in kind (such as clothes, books and toys, etc) are not eligible for tax relief.
In the above example, Amit can request for a tax relief of Rs 2,000 at Payday Stage and claim Rs 500 for his contributions to XYZ institution at the time of filing his tax returns.

Amit has interest income, and can adjust this tax relief against taxes payable. However, if he does not have any other taxable income, he will have to seek a refund for the tax relief for which he is eligible. In short, while it is good to take care, please be aware of tax implications.

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