Can You Claim Income Tax Benefits for Donations to Foreign Charities? Here’s What You Should Know
Indian residents can freely donate to foreign charities, but such contributions don’t qualify for tax deductions under Section 80G and must comply with LRS, TCS, and FEMA rules
Many Indians today support global causes, whether it’s helping victims of war, natural disasters, or global health campaigns. With international NGOs like the German Red Cross or UNICEF accepting online donations, it’s easier than ever to give to a cause you care about. But what about taxes? If you are an Indian resident donating to a foreign charity, can you claim a tax...
But what about taxes? If you are an Indian resident donating to a foreign charity, can you claim a tax benefit under Indian law? The answer is no. Donations to foreign charities are allowed, but they don’t qualify for tax deductions in India. There are also some rules around foreign remittance, TDS, and TCS that you should know before transferring funds abroad.
Let’s break this down
Why Donations to Foreign Charities Don’t Qualify for 80G Deduction
In India, you can save tax on donations made to approved Indian charities under Section 80G of the Income Tax Act. These organisations are registered with the government and can issue you a valid receipt for your donation, along with Form 10BE. This lets you claim a deduction while filing your income tax return.
This benefit is limited to Indian charities that are registered under Indian law. A foreign charity like the German Red Cross or Doctors Without Borders isn’t registered here, so it cannot issue a valid 80G receipt. This means you won’t get any tax deduction for donations made to such organisations.
Know that if you are under the new tax regime, none of the 80G deductions apply anyway. So, your generosity may help the world but won’t reduce your tax bill.
How India Taxes Donations Made to Foreign Entities
When you send money abroad, the transfer falls under the Liberalised Remittance Scheme (LRS), which allows Indian residents to send up to USD 250,000 per financial year for permitted purposes like gifts, travel, or donations.
When you make such a donation, your bank is required to collect Tax Collected at Source (TCS) under Section 206C(1G) of the Income Tax Act. The first Rs. 7 lakh you send abroad in a year is exempt but anything above that attracts 20% TCS.
This means if you donate Rs. 10 lakh abroad, your bank will collect Rs. 60,000 (20% of Rs. 3 lakh) as TCS. Don’t worry, this is not an extra tax, you can claim it as a credit when you file your income tax return.
Understanding the “Gift” Rule: When a Donation Can Be Taxable
Indian law has a “deeming rule” that treats any gift or payment made without consideration (that is, without getting anything in return) as income in the hands of the recipient.
Under Section 9(1)(viii), even if the recipient is a non-resident, a gift above Rs. 50,000 from an Indian resident is deemed to be income accruing in India. However, this rule mainly applies to individuals, not recognised non-profit organisations.
So, if you are donating to a legitimate, tax-exempt foreign charity, it is very unlikely to be treated as taxable income for that charity in India.
Do You Need to Deduct TDS When Donating Abroad?
Under Section 195, Indian residents must deduct TDS (Tax Deducted at Source) before paying any amount to a non-resident if that payment is taxable in India.
Technically, donations to foreign charities might come under this rule, but in practice, since these are bona fide donations to non-profit organisations, they are not considered taxable income. Hence, TDS is usually not required.
That said, your bank may still ask you to provide documentation before releasing the funds. You might need to file Form 15CA (a self-declaration on the Income Tax portal) and, in some cases, a Form 15CB (a certificate from a chartered accountant) confirming the payment is not taxable in India.
Can a Tax Treaty (DTAA) Help You Avoid Double Taxation?
India has signed Double Taxation Avoidance Agreements (DTAA) with many countries, including Germany and the United States. These treaties decide where certain types of income will be taxed.
For example, under the India-Germany DTAA, income that falls under “Other Income” is usually taxable only in the recipient’s country (Germany in this case). This means that if the German Red Cross provides a Tax Residency Certificate (TRC) and Form 10F, the donation will not be taxed in India.
So, if the charity can give these documents, you don’t need to deduct TDS at all.
Rules Under FEMA and the RBI
All foreign donations must comply with the Foreign Exchange Management Act (FEMA). You can remit money abroad only through an authorised dealer bank.
When you make the transfer, your bank will ask you to fill out Form A2, mention the purpose code (S1303 for charitable donations), and confirm that your total remittances for the year are within the USD 250,000 limit.
Banks also perform checks to ensure the charity is genuine and not on any international sanctions list. Political donations abroad or payments to unregistered organisations are not allowed. Violating FEMA can lead to hefty penalties, so always go through proper banking channels.
Common Mistakes Indian Donors Make
- Expecting tax deduction: Only Indian-registered charities can issue valid 80G receipts.
- Ignoring LRS limits: The USD 250,000 cap covers all remittances, including donations, travel, and education.
- Not claiming TCS credit: Many forget to claim the TCS amount collected by the bank when filing their returns.
- Skipping treaty documents: If you don’t collect the charity’s TRC and Form 10F, your bank might insist on TDS.
- Incorrect purpose code: Always use the right code (S1303) to avoid issues under FEMA.
- Not keeping paperwork: Save your bank challans, donation receipts, Form 15CA/CB, and TCS certificates.
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