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Save tax by donating to charities

Author: AN Shanbhag Sandeep Shanbhag/Wednesday, July 11, 2018/Categories: Tax, Expert View

Save tax by donating to charities

Apart from the popular Section 80C, 80CCC, 80D, 80DD and 80U of the Income Tax Act discussed in this column earlier, tax benefits are available from other sections as well. Section 80E for instance allows a deduction on interest paid on loan for higher education. On the other hand, 50 to 100 per cent deduction is available on donations given to charitable organizations. Read about all this in this section now:

Loan for Higher Education: Sec. 80E

Interest paid on loan taken by an individual from a bank, a notified financial institution, or any approved charitable institution incorporated u/s 10 (23C) or 80G (2a) for higher education is deductible for 8 successive years starting from the fiscal year in which the assessee starts repaying the interest. Loan from an employer is not eligible unless he is one of those specified above. The benefit is available on loans taken by the assessee or his legal guardian, for himself as well as for the spouse and children. We hope that in foreseeable future this deduction will be extended even to capital repayment which was the case to begin with.

Higher education means all fields of studies (including vocational studies) pursued after Senior Secondary Examination or its equivalent. Education does not have to be imparted only through book reading; it also includes sports and other recreational activities.

Simple interest is to be debited quarterly or half yearly. Repayment becomes due one year after the course or six months after getting a job, whichever is earlier.

You will do well by comparing the interest rates on educational loans from various sources before applying for one.

Donations: Sec. 80G

A deduction of 50 per cent and in some cases 100 per cent of donations made to approved charitable purposes is available. Some of these donations attract a ceiling of 10 per cent of the total income of the assessee, as reduced by the amount deductible under Chapter VI-A. These donations must be in the form of money and not in kind, unless the donor is the manufacturer of the items donated —178 ITR 171 Saraswati Industrial Syndicate.

Donation exceeding Rs 2,000 shall be by any mode other than cash to be eligible for the deduction.  

Sec. 80GG

An assessee, not being an employee getting HRA, can claim a deduction of rent paid by him for his own residence, in excess of 10 per cent of his total income to the extent to which such excess does not exceed i) 25 per cent of the total income and ii) Rs 5,000 per month, whichever is less.

As in the case of Sec 80G, ‘total income’ is reduced by the amount deductible under any other provision of Chapter VI-A. The assessee is required to file a declaration in Form-10BA.

The deduction is not available if any accommodation is i) owned by the assessee or his spouse or minor child or the HUF of which he is a member at the place where he normally resides or has his office, employment, business or profession or ii) owned by him at any other place and occupied by him.

A problem. The amount deductible u/s 80G depends upon deduction u/s 80GG and vice versa! This involves a difficult mathematical treatment to break through this circular relationship.

Interest on Savings Bank Accounts: Sec 80TTA & 80TTB

Interest on a savings account (not FDs) of an individual or HUF and not a firm, AOP (or BOI) with i) a banking company, ii) a co-operative society engaged in carrying on the business of banking including a co-operative land mortgage bank or a co-operative land development bank or iii) a post office is deductible up to Rs 10,000.

The difficulty here is that it is not clear from the language of Sec 194A (3) whether TDS is applicable on interest on savings deposits. Many banks, particularly the PSU ones, do not apply it whereas others apply it, irrespective of the deductibility of interest on savings bank. Corrective action is necessary by the authorities.

The recent FA18 has inserted a new Sec 80TTB to allow a deduction up to Rs 50,000 on interest from deposits held by senior citizens (but not HUFs and Partnership Firms) from the above-mentioned entities. Sec. 194A has been amended to raise the threshold for TDS on such income for seniors to Rs 50,000.

Having completed our treatise on ‘Deductions Available to Individuals, next time we shall deal with other important areas where the income is charged at special rates, either punitive or concessional in nature.

The authors, A.N. and Sandeep Shanbhag, are leading financial advisors. Write to them at wonderlandconsultants@yahoo.com

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