Want to donate to charity? Here's how

number of people have expressed a desire over the last month to donate to charity, in the view of the tsunami disaster.

While that is a very noble thought, it is wise to do your homework before parting with your money.

After all, you do want your money to reach the people who need it most.

Here are some ways in which you can ensure that you get it right.

~ Put your money where your heart is

There are causes and causes, each one as deserving and heart rending as the other. How do you choose?

Pick one that is close to your heart.

Is it the current natural disaster? Rural development? Orphans? The blind? Rehabilitation of commercial sex workers? Rescuing of street children? The list can go on and on.

The thumb rule: support the work you care most for. The one that tugs your heartstrings. Don't feel obliged to give to any and every cause (there are just too many needs to be met).

Once you identify that one area, locate charities associated with that cause.

• Exclusive! Check out what Shobhaa De says on Shaadi: SMS SHO to 7333

~ Identify the players in the game

Just like the causes, the number of organisations pleading for more help, is many.

Start by looking at three broad categories:

1.The government

The Prime Minister's National Relief Fund, created just after Independence, provides immediate relief to people in distress. The Gujarat earthquake and the tsunami tragedy come to mind.

The Fund depends entirely on voluntary donations received from the public.

The Prime Minister's National Defence Fund was set up in 1962 and is used by the government for the defence services (it provides for the families of those who lost their lives in battle and numerous other services, too).

As you can see, these causes are very specific.

There are various ways you can donate, including online and via the State Bank of India.

Either way, take a look at the Relief Funds web site.

2. An organisation operating in your vicinity

Is there an orphanage in your locality? An old age home? A shelter run for street children? A day school for the neighbourhood slum children?

This is a good option because you can actually see the work being done.

3. A non-governmental organisation

There are a number of NGOs catering to various issues and causes.

But be wary. You must figure out whether they are fly-by-night operators or reliable (and there are lots of unscrupulous ones out there).

~ Separate the wheat from the chaff

Start snooping around.

i. Check online databases. Some good sites are Indian NGOs, Give Foundation, Charity Aid Foundation India, India Development Information Network and India Social.

ii. Talk to friends, colleagues and family members. Ask them if they donate to any specific NGO. What has been their experience? Do they know people there?

iii. Once you have narrowed down on a few NGOs, read up on them. Check their web sites. Visit their offices, if possible, or at least talk to them over the phone. Ask for printed material about the group, its finances, mission, governance and accomplishments.

iv. Ask if their financials are audited, who their board of trustees are, who had founded the organisation, who are the main donors, how they raise funds.

v. Check if the organisation is registered as a charitable organisation by the Commissioner of Income Tax. If yes, the chances of them being reliable and more committed are higher.

Also, to get registered, they must have certain basic documentation, a basic structure and objectives in place since they come under the legal purview of the Charity Commissioner's office.

~ What you need to know about your donation

• Always make a donation via cheque, not cash.
• Do not give a bearer cheque but give a cross cheque, which means the money will be debited directly from your account and go to the account of the organisation.
• Take a signed receipt from the organisation for the exact amount, the date, the cheque number and your name clearly stated.
• If you make a monetary donation to a registered charity, you can provide the receipt when filing your returns and get a deduction from income under section 80G.

Tax benefit is generally available in two broad categories:

1. A deduction from your income (the amount is reduced from your taxable income). To understand the tax calculation methodology, read How your tax is calculated.

2. A portion of the amount is reduced from the tax itself (rebate under Section 88 on the tax that is payable). You will find a detailed explanation of Section 88 in Smart tax-saving solutions. 

When you make a donation, it is considered an expense eligible for deduction from your income. That means it will fall under the first category.

This way, your income that would be taxed is reduced by the amount of donation; only the net amount is actually taxed.

Do note: only monetary contributions get this benefit, not non-monetary donations.

~ Can I donate and provide the proof to my employer for deduction from salary tax?

No. Broadly speaking, employers are not allowed to provide a deduction from salary tax for such donations.

You, as a donor, will have to claim this deduction when filing your personal income tax return.

Do attach the original receipt of your donation. A photocopy will be disregarded by the income tax authorities.

If you donate to the Prime Minister's funds, the employer can provide the deduction while calculating tax on salary. In this case, you will need to provide the original receipt to your employer.

If your employer directly deducts a contribution (this is done for employees who are willing to do so), and makes a consolidated payment to certain organisations or funds, he will automatically provide the deduction to you.

Relax With Tax is a Mumbai-based personal tax and finance solutions provider.