How much can you donate to charity and how much tax can you save by donating money..Lets find out more..
Do not ever under-estimate the power of small. Every penny saved contributes to your financial freedom goal. I have seen so many people striving for higher income but not really concerned or excited about higher savings. If one has to attain financial freedom, one must remember that it does not matter how much you earn, but what matters is how much you save. Anyone serious about financial freedom understands that one has to reach a defined corpus amount, which is self sustainable and for that to happen, the key is "savings" that you do every day and every month rather than the income that you draw every month.
Income Tax Act - Section 80G
In this context, it is important to also look at one of the important tax saving mechanisms available to us. Section 80G of the Income Tax Act allows for tax relief if we donate to charitable institutions approved under the Income Tax act. You might have seen or heard with many such charitable institutions while giving your donation. Since more and more people around me are increasingly willing to donate for charity, this became an important topic for discussion.
What tax savings can i make if i donate
The rate of deduction in income tax is either 50% or 100%, depending on the approval provided to the charitable institution. This means that if i donate Rs. 100 to a charitable institution in a particular financial year, then under Section 80G of the Income Tax Act, i may be applicable for 100% tax relief (or 50% depending upon the institution) on this donated amount.
A 100% tax relief on Rs. 100 essentially means that this amount of my income (Rs, 100) becomes completely tax free. So, if, earlier, i was supposed to pay tax on Rs. 50,000, then now, i am supposed to pay taxes to the govt only on Rs. 49,900/-. If i was in the highest tax bracket, that saves me approx 30% of Rs.100 which is Rs. 30/-.
How do i actually save tax
Remember that you will have to apply for this tax rebate when you file for your annual Income Tax Returns. Also, remember to keep a copy of the receipt from the charitable institution for your donated amount as these documents are needed in case of any future verification check by income tax authorities.
How much can i donate
There is no restriction or upper limit to the amount of money that you can give to a charitable institution. You can, theoretically, therefore give all your salary as charity as well.
How much max tax rebate can i get
Though you can give any amount of money from your salary as charity, remember that donations only up to 10% of your gross total income qualify for tax rebates. Rest of the donation that you gave, over and above 10% of your salary is still fully taxable depending on the tax rate slabs applicable in your case.
What do i do now
So, if you donated anything last year and have not yet filed the income tax returns, then go and apply for this rebate to reduce your tax burden and contribute to your savings. This eventually contributes to your goal of financial freedom.
Do not hesitate to share. It can make a positive impact on someone's life.
The book "From the Rat Race to Financial Freedom" has many such investment concepts explained in a very simple and uncomplicated manner, especially in the Indian context.
Cheers
Manoj Arora
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