Charitable giving can benefit both society and your company's tax deductions. Explore how to maximise your tax benefits through strategies such as appreciated asset donations and employee volunteerism programs
In India, corporate social responsibility has gained significant importance over the years. Many companies recognise the value of giving back to society through charitable donations and philanthropic initiatives. Charitable company donations are a noble act that helps society and earns tax benefits. Donating money is the most common form of charitable giving. There are other options as well that companies can explore to maximising tax deduction. This article discusses various ways companies can optimise their charitable giving for tax benefits.
Donating Appreciated Assets to Maximise Charitable Deductions
One of the most effective ways companies maximise their tax deductions is by donating appreciated assets such as
- Stocks
- Bonds
- Real estate.
The company can claim a tax deduction for their fair market value when these assets are donated. Additionally, the company does not have to pay capital gains tax on the appreciated value of the assets.
For example:
A company donates stocks worth ₹ 1 lakhs to a charitable organisation.
The fair market value of the stocks is ₹ 1.5 lakhs.
The company can claim a tax deduction for ₹ 1.5 lakhs.
Moreover, the company does not have to pay capital gains tax on the ₹ 50,000 appreciation of the stocks.
Structuring Charitable Giving Programs for Tax Optimisation
Companies can give money to charities in many ways. It helps them save money on their taxes. One way is to use a program called a Donor Advised Fund (DAF). With this program, a company can give a big donation. They will also get a tax deduction right away. Then, they can take their time to decide which charities to give the money to.
Charitable Remainder Trust (CRT) is another program. With this program, a company can give something valuable to a trust.
Example: Like property or investments.
They can get a tax deduction for this gift. They also receive income from the trust for a certain amount of time. After that time is up, the assets are given to a charity.
Tax Benefits of Corporate Giving Programs and Volunteerism
In addition to getting a lower tax bill for certain expenses, companies can get tax credits for their charity programs and when their employees volunteer. Some laws allow companies to get tax credits for donating to specific charitable organisations. Companies are also required to spend a certain amount of money on things that help society, and they can get a tax credit for that too.
Companies can also get tax credits when their employees volunteer their time for approved research projects or programs that help people in rural areas.
Comparing Charitable Giving Options for Tax Efficiency
Companies can look at different ways to donate to charities and see which option gives them the best tax benefits.
| Charitable Giving Options | Tax Benefits | Considerations |
| Giving money | Tax deductions | Cost of management |
| Giving things with increased value | Tax deductions | Rules and regulations |
| Giving money and things | Combined tax benefits | Impact on the charity |
| DAFs (Donor-Advised Funds) | Tax deductions | Cost of management |
| CRTs (Charitable Remainder Trusts) | Tax deductions | Rules and regulations |
| Private Foundations | Tax deductions | Cost of management |
Tax Consequences of Donating Intellectual Property to Charitable Organisations
Businesses can contribute their intellectual property (IP) to nonprofit groups, but some tax repercussions must be considered. When intellectual property is donated, the business is entitled to a tax credit for its fair market value. To ascertain the IP’s fair market worth, the corporation must get a valuation study from a certified assessor.
The business must also ensure no liens or legal problems on the IP. If such problems exist, the corporation may be subject to both legal and financial obligations. Additionally, the business could be required to pay taxes on any money it receives from the IP if the charity organisation utilises it for commercial endeavours.
Furthermore, if the IP is donated to a foreign charitable organisation. The company may have to comply with international tax laws and regulations. Companies must consult with tax professionals and legal advisors before donating their intellectual property to charitable organisations.
Conclusion
When companies donate money to charity, it helps society and gives the company tax benefits. They can donate things they own that have gone up in value, set up programs for giving to charity, or encourage their employees to volunteer. By doing this, companies can get the most deductions on their taxes.
Companies must consider their options and how taxes will be affected before deciding. If a company wants to donate ideas or things they’ve created, it must be careful about the laws and taxes involved. By doing this, companies can impact the charity most and get the most out of their taxes.
Vakilsearch can assist companies with maximising their tax deductions for charitable donations. We offer expert advice on tax laws and regulations. We help with structuring charitable giving programs and donating appreciated assets. Contact us today.
FAQs:
Can I claim an 80G deduction through my employer?
Employers typically avoid providing the 80G deduction directly, as determining the specific percentage of exemption for each deduction can be complex. Instead, employees can claim this deduction when filing their income tax returns.
What is the maximum tax relief on charitable donations?
The highest permissible sum under Section 80G will be 50% of the lesser of either a) the donated amount (₹ 90,000) or b) the qualifying limit of ₹ 75,000.
What is the 80G 100% deduction limit?
Donations offering 100% Income Tax Deduction, limited to 10% of adjusted gross total income, support family planning through government, approved local authorities, institutions, or associations.
Which donation is eligible for 50% deduction under 80G?
Contributions eligible for 50% Deduction (Without any qualifying limit): Donations to trusts such as the Prime Minister's Drought Relief Fund, National Children's Fund, Indira Gandhi Memorial Fund, etc., are eligible for a 50% tax deduction on the donated sum.
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