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How much should you donate to charity?

How much to donate is a personal choice. While you may or may not follow any rules, it is always a good idea to donate, according to your capacity and without stretching your finances.

Did you know that many faiths provide a guideline for its followers as to how much to give? Some religions prescribes 2.5 percent of personal wealth, while others put it at 10 percent of income or annual produce. 

How much to donate is however a personal choice. While you may or may not follow any rules, it is always a good idea to donate, according to your capacity and without stretching your finances.

Charity begins at home 

Are you able to pay your monthly bills and save as well? Are you running debt of various kinds and using credit cards to bridge the gap? 

If you are high on debt, focus on getting your financial house in order.

On an average, one should be able to save at least 10-20 percent of income for retirement and other financial goals. Your contribution towards charity should come after investing towards the above mentioned goals.

If possible, streamline your discretionary spends – be it on dine outs or leisure travel – to save for charity. 

Figure out the cause you are passionate or deeply care about. Is it to feed the hungry or educate children? Subsequently, enlist organisations that are serving the cause.

Charitable goals

Figure out the cause you are passionate or deeply care about. Is it to feed the hungry or educate children? Subsequently, enlist organisations that are serving the cause.

Do a thorough research on them as regards their track record and expenses. An organisation with high expenses has a poor allocation rate. For instance, an NGO with an expense that totals 15 percent of disbursement, will only allocate 85 percent of your donated money towards the cause. Rest will go towards paying for their office expenses and administration.

You can find all this on the organisations’ website. 

Pare down the list

Rifle or a shot-gun approach? Perhaps it might make sense to pick the rifle and shortlist two or three causes and donate all to them. It can accelerate progress towards the cause.

Sometimes your cause might be better served by dealing directly with the parties concerned. Perhaps your maid or driver might want finances to fund their children’s education. The advantage of this approach is that you ensure the affected party gets the full money. 

Tax angle

Under Sec 80G of the Income Tax Act, donations made to specified relief funds and charitable institutions can be deducted from gross total income before arriving at your taxable income. So, if you are in the topmost tax bracket, you save taxes to the extent of 30 percent of your contribution.

However, there are upper limits for some. Prime Minister’s National Relief fund and National Defence fund doesn’t have an upper limit. Donation made to these funds fully qualifies for deduction to the extent of the donation made. In contrast, Prime Minister’s drought relief fund qualifies for only 50% of the donation made. 

Moreover, contributions made to charitable funds or institutes are limited to 10 percent of adjusted gross income for the purpose of calculating tax benefits. 

So, check the limits against your income to ensure you claim the maximum tax benefits. 

Ensure you use cheque or online mode for donating, instead of cash. The latter has an upper limit of Rs 2,000 in a financial year. 

Corporate matching gifts

Some MNCs offer employee matching gift programs whereby they match donations made by employees to eligible non-profit organisations. It will essentially double up donations made to these organisations. Check with your HR, regarding the eligibility, paperwork and the deadlines to make the most of it. 

Benchmark

Many financial experts advise budgeting about 5-10 percent for donations, if need be. If your heart wants to do more, but have a monetary constraint, think differently. Consider becoming a volunteer and donate your time and skills instead.  It need not always be about aligning with NGOs. It could be as simple as teaching street kids or technology to elders in the neighbourhood. 

Takeaway

Pay all your necessary expenses, save for retirement, and contribute from the rest. Budget up to 10 percent for charitable giving and donate your time and skills to make up for the short-fall.


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