A bit more given to those who donate

Section 18A of the Income Tax Act allows tax deductions in respect of donations made to beneficiaries approved in the ninth schedule.

The provisions have to be carefully determined because there has been some imaginative interpretation of what constitutes a donation.

Tax-deductible donations are in any event limited to 10% of the taxpayer’s income in any year of assessment. Most of us do not have that much to give.

But there are cases in which approved institutions appeal for increased donations towards a particular project. And there are donors who are prepared to support such appeals on a one-off basis. In these instances, donations may exceed the 10% rule and the tax deduction is permanently forfeited. This limitation has scuppered or delayed many philanthropic initiatives.

There is welcome relief Roxy Palace Online Casino Deutschland bietet casino spiele rn eine weite Palette von Casino casino spiele n in ganz Deutschland. in this year’s proposed tax amendments. The 10% limitation will still apply, but taxpayers will be allowed to carry forward disallowed donations to the following year of assessment and claim the disallowed portion against the following year’s income, again subject to the 10% rule.

Any disallowed donations will be forfeited on the death of the taxpayer. This opens the bequest versus donation debate. Does one donate to approved institutions during your lifetime, or bequeath a portion of your estate to charity in your will?

Obviously, beneficiaries prefer donations. But benefactors don’t know how long they will live and thus prefer bequests. Perhaps that is why we see so many bequest drives visiting old age homes.

But if the beneficiary is an approved institution, the debate is different. Benefactors receive a tax kickback of up to 40% of donations. Most of this is lost applying the bequest alternative.

If the benefactor does not want or need the tax refund, it can be donated back to the same institution, creating a further refund in the next year of assessment, and so on.

Both beneficiary and benefactor stand to achieve far more with donations than bequests.

Originally published in the Sunday Times: Money & Careers Tax Talk column.

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