The exemption is calculated by reducing the donated amount from your taxable salary. For instance, if your taxable income per year is ₹2,00,000 and you make a donation of ₹5,000 then your net taxable income will become ₹197,500. Your tax will now be calculated on this new amount basis the prevailing tax rates. Check the category in which the fund/charitable institution falls (100% or 50% deduction with or without maximum / qualifying limit).
- When the payment is made to the first category then there is no need for further calculations, just claim 100% or 50% of the donation amount subject to taxable income.
- When payment is made to the second category you need to first find out the maximum/qualifying limit. The maximum / qualifying limit is 10% of the “adjusted gross total income”.
- Now use this formula to arrive at the amount of deduction =
- Gross Qualifying limit = All donations made to category 2
- Net Qualifying limit = This is 10% of the “adjusted gross total income”.
- Amount Deductible = 100%/50% of the donation amount subject to qualifying limit.