Centre’s clarifications clear doubts on a useful tax break
On March 31, the Centre announced that donations to the PM CARES Fund (Prime Minister’s Citizen Assistance and Relief in Emergency Situations Fund) will get tax breaks under Section 80G of the Income Tax Act.
The announcement has three key aspects:
One, the PM CARES Fund will get the same tax treatment as available to the Prime Minister National Relief Fund. So, donations to the PM CARES Fund shall be eligible for 100 per cent deduction under section 80G of the Income Tax Act. Further, the limit on deduction of 10 per cent of gross income shall also not be applicable for donation made to PM CARES Fund.
What this means: Say, your income is Rs 20 lakh and you donate Rs 2.5 lakh to the PM CARES fund. You get a deduction under Section 80G on your entire donation of Rs 2.5 lakh, and your taxable income reduces to Rs 17.5 lakh (Rs 20 lakh less Rs 2.5 lakh). So, you pay less tax of Rs 78,000 (31.2 per cent of Rs 2.5 lakh).
Two, the Centre has said that the date for claiming deduction under Section 80G has been extended up to June 30, 2020. So, donations made up to June 30, 2020 shall be eligible for deduction from income of FY 2019-20.
Three, the Centre has clarified that any person, including corporates, paying concessional tax on income of FY 2020-21 under the new tax regime, can make donations to the PM CARES Fund up to June 30, 2020 and can claim deduction under Section 80G against income of FY 2019-20. Such persons will not lose their eligibility to pay tax in the concessional tax regime for income of FY 2020-21.
What this means: Some of us may want to shift to the new, optional tax regime that is available from April 2020 for FY 2020-21 and beyond. Under the new tax regime, the rates of tax are lower, but there is no benefit of most tax exemptions and deductions, including Section 80G. Under the current tax regime that will also continue to be available, the rates of tax are higher, but you get benefit of exemptions and deductions, including Section 80G.
Donate money, not in kind: You can get deduction under Section 80G only if you donate money. There is no deduction if you give in kind. So, if you want a tax break, donate funds, and not clothes, food items, utensils or such items. Also, donations in cash above Rs 2,000 are not eligible for deduction under Section 80G. So, if you intend giving more than Rs 2,000, do so in modes other than cash such as cheques, demand drafts and online bank transfers.
Submitting the receipt along with the tax return is not mandatory. But it may come in handy at a later date if the tax officer asks for proof of donation.