BT Insight: Donated to PM CARES Fund? Here's how can save income tax

Key highlights

• Any donation to PM CARES fund eligible for 100 per cent tax deduction under Section 80G
• Deadline for making tax saving donation for FY20 extended till June 30
• Use this window to make donation and claim deduction on previous year's income
• If you make two donations you can claim deduction for two different years
• The deduction is applicable only when you opt for old tax regime with tax deduction

Coronavirus pandemic is not just the worst health crisis but also the toughest economic challenge that any government has faced since independence. A significant part of the population is unable to feed itself in absence of employment due to ongoing lockdown. Government has a difficult task of managing resources to feed the poor, save the economy and provide best treatment to all coronavirus patients.

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In such a situation, compassion of its citizens helps the government. To enable the people to contribute, the Union government came up with PM Cares fund in which people can donate and enjoy tax benefit.

"The donations made to the PM CARES Fund would be eligible to receive 100 per cent deduction under Section 80G of the Income Tax Act. This simply means that you won't have to pay any tax on the amount donated to PM CARES Fund. An added advantage to this is that the limit on deduction (10 per cent of gross income) shall also not apply on this donation," says Pranjal Kamra, CEO, Finology.

The absolute amount of tax saving that you can do through this donation will depend upon your income tax slab. "The deduction can save taxes based on the income tax slab in which the taxpayer's income is taxed. The donations will be able to save 31.2 per cent (plus applicable surcharge) in taxes at the peak rate of tax," says Archit Gupta, Founder and CEO - Cleartax.

Extension of timing of donation

Any donation made during a financial year is eligible for income tax exemption during the same financial year. However, due to nationwide lockdown in second half of March (last month of the financial year 2019-20), government has extended the last day to make donations under section 80G.

"For the FY 2019-20, the government has extended the benefit of the deduction for donations beyond 31 March 2020. A person making donations between 1 April 2020 and 30 June 2020 can claim the deduction in the FY 2019-20 (AY 2020-21). Hence, the taxpayer can claim the deduction while filing the income tax return due by 31 July 2020," says Archit Gupta, Founder and CEO - Cleartax.

Also read: PM CARES Fund: Cabinet Secy Gauba starts fund collection drive in ministries, PSUs

So if you missed making donation in the previous financial year you can very well grab this opportunity. "The extended deadline i.e. June 30th will benefit the donors in a big way because the deduction under Section 80G can now be claimed till June end whereas this deduction can be claimed from the income of last year (FY 2019-20)," says Pranjal Kamra of Finology.

How to double tax saving

You can claim tax deduction on one donation only once. "The donations made after 1 April 2020 are made in the financial year 2020-21. In case the taxpayer wishes to claim the deduction for the FY 2020-21 (AY 2021-22), then no deduction can be claimed for the FY 2019-20 (AY 2020-21). The claim for a deduction for FY 2019-20 is optional for a taxpayer. In case the option is chosen for FY 2019-20, no deduction can be claimed in FY 2020-21," says Archit Gupta, Founder and CEO - Cleartax.

However, the next question which a taxpayer faces is if one makes two donations, can one claim deduction on two different financial years separately. "One can make 2 donations and claim them in FY 2019-20 and FY 2020-21 separately," clarifies Kamra.

Also read: Coronavirus: Paytm collects Rs 100 crore for PM-CARES fund from donors

The option to select a financial year of choice will remain only when you make donation during the extended period between April 1, 2020 and 30 June, 2020 and not if you have already made one contribution by 31 March 2020 or future contribution after June 30. "Donations made before 31st March 2020 will be claimed in FY 2019-20 only however, the donations made from April 1, 2020 to June 30, 2020 can be claimed in either of the financial years with the aforementioned condition," says Pranjal Kamra of Finology.

Benefit only in old tax regime

The tax regime has significantly changed this year. Now taxpayers have to select between two regimens- one with deduction and other with reduced tax rate but without any deduction benefit. "If the tax payer wishes to continue with the old tax regime, only then it would make sense to donate in PM CARES Fund and claim for the next financial year whereas, if the tax payer wishes to switch to the new tax regime he/she won't be able to claim deduction and hence, won't get the benefit," says Pranjal Kamra of Finology.

Also read: Coronavirus: Govt brings in Ordinance to give effect to I-T compliance, full deduction for donation to PM-CARES