How personal loan borrowers can save tax through donations

Personal loans do not offer us any tax benefits, right? That’s why many such borrowers, including those who have taken loans from banks, NBFCs or fintech like Cashe, are deprived of tax-saving benefits, unlike home loan borrowers who get tax benefits on both principal and interest payments.


And each and everyone who falls in the income tax slab wishes to reduce overall tax outgo by claiming deductions under various sections of the Income Tax Act. While most of the available deductions, such as home loan interest and principal, insurance premium, etc., are known to most taxpayers, another lesser-known way to save tax is through donations. Yes, that’s right. 


You can do the noble act of donating and simultaneously save tax on the donated amount, subject to certain terms and conditions. This tax benefit from the government often acts as an added benefit for those who are willing to do charity and give back something to society for noble causes. So let us deep dive and know all about tax saving through donations.


Who is eligible to avail of the tax benefit?

If you are repaying a personal loan that you had taken from loan apps, remember that you can easily claim income tax deduction under Section 80G of the Income Tax Act for making donations is not restricted to any specific category of persons/ assessees. This tax deduction can be availed by any assessee who donates to the specified institutions and notified relief funds set up by the government.


It’s important to remember that even when you are simultaneously repaying a loan from Cashe, going for any form of donation made to foreign trusts fails to qualify for claiming tax deduction under this section. But under section 80GGC, the donation made to political parties by an Individual can be claimed as a tax deduction. 


Which mode of payment is eligible for a tax deduction?

Another thing to keep in mind when you are repaying EMIs for the borrowed money from loan apps and wish to claim a tax deduction on donations, only if the payment to specified trusts, institutions, and funds is made via cheque, cash, or digital modes, it can be claimed as tax deduction under section 80G. 


And earlier, the upper limit for a cash donation that can be claimed as a tax benefit was kept at Rs 10,000, but effective from the assessment year 2018-19, the maximum limit has been reduced to Rs 2,000. However, apart from cash donations, there is no upper limit on the tax deduction amount for payments made through cheque or digital payment methods of donation. 


As a Cashe borrower or when repaying any other loan and wishing to do tax saving through donation, remember that other forms of donations like clothes, food, etc., are not eligible to be claimed under Section 80G.


Donation amount that can be easily claimed as a income tax deduction from income

Under section 80G, the amount of donation that can be claimed as a tax deduction can either be 100% or 50% of the amount donated, subject to ‘with’ or ‘without’ the upper limit imposed otherwise.

The donated amount that can be claimed as a tax deduction and the upper limit, if any, would depend upon the entity to which you are donating. It’s therefore advisable to select the recipient of your charity with prudence, especially if you are planning to claim a tax deduction on it. Remember that the list of trusts, funds, and institutions, along with a specified limit that is eligible for a tax deduction, is from time to time notified and updated by the income tax department.

Tax deduction on donation without upper limit: In case of donations wherein the ‘without upper limit’ clause is applicable as per the amount and entity to which it was made, you can claim either 50% or 100% of the donation amount without any other form of limitation.

-Tax deduction on donations with upper limit: In case of donations that involve an upper limit clause, tax deductions on donated amount can be claimed either 100% or 50%, whichever is applicable as per recipient entity, of 10% of the individual’s gross adjusted income

For this purpose, Adjusted gross income is computed by deducting all exempted incomes, long-term capital gains, and all deductions under section 80C to 80U except for 80G, from the Gross Total Income.

Which donation recipients are eligible for a 100% Deduction Without an Upper limit?

Cashe borrowers should remember that some of the donation recipients include the National Defence Fund of Central Government, Prime Minister’s National Relief Fund, an approved university/educational institution of National eminence, medical relief fund set up a state government, National Illness Assistance Fund, National Sports Fund, National Cultural Fund, National Children’s Fund, etc.

Which donation recipients are eligible for a 50% Deduction Without an Upper limit?

Some of the recipients include Jawaharlal Nehru Memorial Fund, Rajiv Gandhi Foundation, Prime Minister’s Drought Relief Fund, etc.

Which donation recipients are eligible for 100% tax deduction subject to 10% of Adjusted Gross Total Income?

Some of the donations include certain donations to be utilized to promote family planning, donation by a company to the Indian Olympic Association or any other notified association or institution, etc.

Which donation recipients are eligible for a 50% tax deduction subject to 10% of Adjusted Gross Total Income?

Borrowers who have taken funds from loan apps should also remember that some of the eligible donations include any corporation referred to in Section 10(26BB) for specifically promoting the interest of the minority community, donations for repairs or renovation of any notified praying place like a temple, mosque, gurudwara, church, etc.

Which donations are eligible for tax deduction under section 80GGA?

Amongst a long list of donations eligible for tax deduction under section 80GGA, here are some of them:

-Any amount paid to an approved research association or college/university which undertakes scientific research

-Amount paid to an approved association. an institution that undertakes any program for rural development

-Amount paid to a public sector company, approved association/institution, or local authority that carries out projects or schemes approved under section 35AC of Income Tax Act.

-Amount paid to a notified rural development fund

-Amount paid to a notified fund for the purpose of afforestation

-Amount paid to a notified national poverty eradication fund

Documents required to avail tax deduction

Even when you are repaying a loan from Cashe and have done the noble act of donation besides repaying the loan EMIs, keep in mind that for claiming the tax deduction, you need to provide the standard receipt issued by the recipient entity as proof and confirmation of the genuine donation made. Make sure the receipt contains all the relevant and required information like the registration and contact number of the trust, full name of the donor, amount donated, address, etc. All these details are important while filing an income tax return to claim the tax deduction.


Summing it up, there’s no doubt that donation is indeed a kind step to take whenever you are willing and capable enough to do so, especially when you have the financial obligation of repaying EMIs for the borrowed money from loan apps. However, while claiming a tax deduction for this, make sure you carefully read the income tax rules and information regarding eligible and approved institutions/funds/trusts.


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