Common Mistakes to Avoid When Claiming Tax Deductions on Donations

Tax deductions on donations can provide significant financial relief while supporting charitable causes. However, claiming these deductions involves following specific rules and guidelines. Mistakes in the process may lead to denied claims or even penalties. Understanding these common errors and how to avoid them is crucial for ensuring smooth and successful claims.

Donating to charitable organizations is not just a noble act; it is also rewarded by tax benefits in many countries, including India. The government allows individuals to claim deductions under Section 80G of the Income Tax Act, encouraging more contributions to recognised NGOs. By making a tax donation deduction, donors can support causes that matter while benefiting from reduced tax liabilities.

However, a lack of awareness about rules can cause individuals to miss the benefits. This blog covers why donating to an NGO is impactful and the common mistakes to avoid when claiming tax deductions on donations.

Why You Should Donate to an NGO?

Donating to an NGO contributes to social causes and creates a ripple effect of positive change in communities. It also allows taxpayers to make a difference while enjoying tax benefits. Here are some reasons to donate to an NGO:

• Tax Benefits: Contributions made to registered organizations under Section 80G of the Income Tax Act are eligible for tax deductions. The percentage of the deduction depends on the organization's certification. Donations to CRY India qualify for a 50% tax exemption, allowing you to contribute to a meaningful cause while enjoying tax benefits. 
  
• Encourages a Giving Culture: Supporting NGOs inspires others to contribute, creating a culture of giving that benefits society. When you donate to a leading NGO like CRY, you contribute to a larger movement that champions children's rights, ensuring they get access to education, healthcare, and a safe childhood.
  
• Promotes Social Welfare: NGOs like CRY India work towards ensuring children’s rights, including access to education, health, and protection from exploitation by advocating for policy changes and empowering communities. Through generous donations, these organizations can extend their reach, impact more lives, and ensure the sustainability of their initiatives, creating a brighter future for underprivileged children.
  
• Transparency and Accountability: Recognised NGOs often maintain detailed records, ensuring that funds are utilised effectively for the intended cause. 
  
  Donating to NGOs supports critical social causes like child education and welfare, offers tax benefits, and promotes a culture of giving. Your contribution can create lasting change and inspire a brighter future for underprivileged communities.

Common Mistakes and How to Avoid Them

When claiming tax deductions on charity donations, avoiding common pitfalls is essential. Below are the most frequent mistakes donors make and tips on how to steer clear of them:

Donating to Ineligible Organisations

• Donations must be made to organisations registered under Section 80G to qualify for deductions.
• Many individuals mistakenly donate to unregistered organisations and are unable to claim deductions.

How to Avoid:

Verify the NGO’s registration status before donating. Recognised organisations typically provide an 80G certificate upon request.

Failing to Keep Proper Documentation

• Documentation, such as receipts and certificates, is mandatory for claiming tax benefits. Many individuals fail to retain these documents, leading to denied claims.

How to Avoid:

Always collect and preserve charity donation receipts that mention the following:

• The donor's name
• The organisation’s name
• PAN number of the NGO
• Donation amount
• Registration number under Section 80G

Overestimating the Value of Non-Cash Donations

Donors often overestimate the monetary value of non-cash contributions, such as clothes or food, which can lead to discrepancies in tax assessments.

How to Avoid:

Contributions such as clothing, food, or medicines are typically not eligible for tax deductions under Section 80G of the Income Tax Act. Tax benefits apply only to monetary donations made through recognised methods, such as cheques, bank transfers, or digital payments.

Ignoring IRS Limits on Charitable Deductions

The Income Tax Act limits the maximum deduction a donor can claim. Exceeding these limits results in disallowed claims.

How to Avoid:

Check the limits for charitable deductions based on your income slab. Ensure the claimed amount adheres to the prescribed cap.

Forgetting to Itemise Deductions

Under Section 80G, tax deductions only apply when deductions are itemised. Itemising involves listing all your eligible expenses, including donations, when filing your taxes. Many individuals overlook this requirement, claiming standard deductions instead.

How to Avoid:

If claiming deductions on donations, opt for itemised deductions during tax filing.

Missing Deadlines for Donations

Donations made after the financial year cutoff date (31st March) are ineligible for deductions in that financial year.

How to Avoid:

Plan your charitable contributions well before the financial year ends to ensure they are eligible for deductions.

Falling for Donation Scams

Fraudulent organisations often pose as NGOs to collect funds that are not eligible for tax benefits.

How to Avoid:

Verify the legitimacy of the NGO by:

• Checking their 80G registration.
• Reviewing their financial reports and activities.

Forgetting to Report Donation Carryovers

Donations exceeding the annual deduction limit can be carried forward to the next tax year (Source: IRS, 2024). Failing to report these carryovers results in lost deductions.

How to Avoid:

Maintain detailed records of excess donations and ensure they are reported in subsequent years’ tax filings.

ALSO READ: How To Save Tax By Donating To NGO?

Misunderstanding Special Rules for Donating Assets

Donating assets like property or shares involves special tax rules. Misinterpretation can result in errors during claims.

How to Avoid:

• Consult tax professionals or refer to guidelines for asset donations under Section 80G.

Conclusion

Claiming tax deductions on donations requires attention to detail and adherence to rules. By avoiding common mistakes, donors can maximise their tax benefits while supporting causes they care about. 

Recognised NGO organisations like CRY India ensure donations make a real difference in children’s lives while enabling donors to claim eligible deductions. For example, donating ₹10,000 to CRY India offers a 50% deduction and allows a tax benefit of ₹5,000. 

Making informed contributions and maintaining proper documentation simplifies tax filing and enhances the impact of your charitable donations.

Frequently Asked Questions

How much donation amount is tax-free?

The amount of tax-free donations depends on the NGO’s certification. Donations made to CRY India are eligible for a 50% tax deduction under Section 80G of the Income Tax Act. While contributing to this meaningful cause, donors can claim tax benefits, provided the total deduction does not exceed 10% of their adjusted gross total income.

What is the tax deduction rule for donations?

Tax deductions on donations in India are governed by Section 80G of the Income Tax Act. To qualify:

• Donations must be made to eligible organisations.
• Receipts must be preserved.
• Cash donations exceeding Rs 2,000 do not qualify for tax benefits under the Income Tax Act.