Income Tax News: You may find it hard to believe, but it’s true that you can save Rs 12,500 in taxes by making a mere donation of Rs 10. The Income Tax Act contains a section 80G that exempts donated funds from taxation. You may be wondering how to donate and save taxes now. Allow us to explain the mathematics in full to you.
Common Misconception about Charitable Donations
In actuality, everyone holds the belief that those with great wealth make charitable donations. But in actuality, giving can result in significant tax savings. Let’s examine a scenario where a donation of Rs. 10 can result in tax savings of up to Rs. 12,500. To put it simply, you will be able to save about Rs 2.5 lakh in taxes.
Overview of Tax Slabs and Deductions in the Previous Tax Structure
According to the current tax slab, there were numerous deductions available under the previous tax structure. You won’t be required to pay any taxes on your taxable income up to Rs 5.5 lakh if you fall under that tax regime. Up to Rs 2.5 lakh, no tax is imposed on anyone in this. Every employed person also benefits from a standard deduction of Rs 50,000 at the same time. If your total income is still Rs 5.5 lakh or less after these exemptions and deductions, you are eligible for a tax refund of Rs 12,500 under Section 87A under the 5% slab on Rs 2.5 lakh. This implies that there will be no taxes due. However, you will not receive this Rs 2.5 lakh rebate if your earnings exceed Rs 10.
Introduction to Section 80G of the Income Tax Act
You may benefit from Section 80G of the Income Tax Act if, even after deducting the standard deduction of Rs 50,000, your income is still slightly over Rs 5 lakh. For this, you donate 10 rupees. Since your taxable income will now be Rs 5 lakh, there won’t be any tax on the Rs 10 you donate under 80G. You will receive a tax exemption of Rs 12,500 and not be required to pay any tax on it due to your taxable income of Rs 5 lakh. Even though we’ve only used Rs. 10 as an example here, the amount may be higher for you.
Taxable Income Calculation After Standard Deduction
Assume that after the standard deduction, your total taxable income is Rs 5.10 lakh. This means that you will be required to pay tax on Rs 12,500 at the 5 percent rate on Rs 2.5–5 lakh and Rs 1000 at the 10 percent rate on the remaining Rs 10,000, for a total of Rs 13,500. If you donate Rs 10,000 in this case, your taxable income will drop to Rs 5 lakh and you won’t be required to pay any taxes. In other words, you will save tax on Rs 13,500 if you donate Rs 10,000. Your total profit will be Rs 3,500 in this way.
Fiscal Year Alignment for Donations
Donating can help you save money, but remember that it must be made in the same fiscal year that you are filing your ITR. In other words, in order to benefit from this, you will need to begin your income tax planning at the beginning of the year. In other words, if you want to donate Rs 10 to save taxes, start your computation early to find out how much tax you will actually owe.
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