What are the tax implication of donations?

Usually, money to charities is given from the post-tax income. Charitable contributions do not attract any tax.

Print Edition: April 2, 2009

I want to donate money to a charitable institution. Is there a limit to the amount I can give to charity and what is the tax implication for such donations?
- Parthiv Desai

Usually, money to charities is given from the post-tax income. Charitable contributions do not attract any tax. On the contrary, you get tax relief if you donate to institutions approved under Section 80G of the Income Tax Act, 1961. The rate of deduction is either 50% or 100% depending on the fund you choose. There is no restriction on the amount of charity you give, but as far as the Income Tax Act is concerned, donations up to only 10% of your gross total income qualify for deduction. Considering this, if you contribute to institutions that provide a 50% deduction from the gross total income, the balance 50% will be taxed in your hands at the applicable rate.

I bought a house in July 2004 for Rs 3.42 lakh and sold it in October 2008 for Rs 6.5 lakh. My annual income is Rs 5 lakh. Do I need to include the gain from the sale of the house in my income? What will be the capital gains tax?

—Alex Pandian

Yes, you will have to include the net profit from the sale of your house as income under the head of ‘capital gains’. As you had held the house for more than three years, the gain is a long-term one and the cost shall be indexed as per the Cost Inflation Indices (CII) for the years of sale and purchase. In your case, the indexed cost price will be calculated as follows:

Purchase price (Rs 3.42 lakh)X CII of sale year (582)/CII of purchase year (480)

This comes to Rs 4,14,675.
Gain: Rs 6,50,000 — Rs 4,14,675 = Rs 2,35,325.
Long-term capital gains tax @ 20% = Rs 47,065

You can avoid paying this tax by using the profit to buy a new house within two years or by buying a property in the one year prior to selling the house. The exemption is also available if you construct a new residential property within three years from the date of transfer, wherein under Section 54, the entire capital gain will be exempt from income tax.

My landlord wants me to pay for all the maintenance work carried out in the house. Am I legally bound to do so? If I am, and actually pay for the work done, can I claim tax relief on it?
—Rahul Varshney

A tenant is not obliged to pay for the maintenance and repair work of the house he is living in unless this fact has been stated in the lease deed and agreed upon by both the landlord and the tenant. The Income Tax Act does not give any concession to the tenant for repairing and maintaining the property taken on rent. In fact, the house owner is given a standard deduction of 30% for this purpose from the rent received by him in a financial year, irrespective of the actual repair work done.

My daughter obtained a PAN card as she wanted to learn share trading. I gifted her Rs 50,000 for this purpose. She has no other source of income. Will she have to pay tax on the money she got as a gift?
—Rani Sethi

Any money gifted by a parent to a child above 18 years old is exempt from tax. If she is a minor, the profit from the investment will be added to the income of the parent who earns more. The PAN card was necessary for opening a demat account, but since your daughter does not have any income, she is not required to file her income-tax return. Only if her annual income exceeds Rs 1.8 lakh, would she need to file her return.

Are matters of tax taxing your brain?
Singh & Gupta, chartered accountants, will answer your queries on taxation. Log on to www.moneytoday.in and click on Tax Queries to submit your questions.

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