Catholics believe in indulgences because even after a sin has been forgiven wounds remain that need to be healed. Perhaps the most controversial aspect of the Church’s teaching on purgatory is her practice of praying for the release of the souls there. All Christians understand that believers on earth are joined to one another through prayer (cf. Rom. 12:5; 1 Cor. 12:12ff.; Eph. 1:22-23, et al.). Like the soul itself, this prayer link survives death, for death is powerless “to separate us from the love of God in Christ Jesus our Lord” (Rom. 8:38-39). Those who have died in friendship with God are not “asleep” in the grave, but united to Him. Our Lord declared after all that God “is not God of the dead, but of the living” (Luke 20:38). He Himself conversed with the long-deceased Elijah and Moses in the presence of the Apostles (Mark 9:3); and promised the Good Thief he would be with Him in paradise that very day (Luke 23:43).
The Church's practice of granting indulgences rests on her belief she has received from Christ the power to bind and loose, or grant and deny entry into the kingdom of heaven (cf. Matt. 18:18). The Lord has given the Church the power to forgive sins in the sacraments of Baptism and Reconciliation (cf. Acts 2:38; John 20:23); and to remit temporal punishments connected with sins through penance and indulgences (cf. Matt. 18:18). This would include the remission of the temporal punishments that may remain after death in purgatory, hastening one's entry into heaven. Here we are dealing with the Catholic concept of redemptive suffering: a believer's ability to willingly join his sufferings to those of Christ for the spiritual welfare of himself and others.
The granting of indulgences came under fire with the preaching of Johann Tetzel in Germany in the 16th century. Sent to promote Pope Leo X’s indulgence to help finance the construction of the Basilica of Saint Peter in Rome, Tetzel improperly presented the Church’s teaching, leaving his hearers with the mistaken notion it was possible for them to buy entry into heaven for their deceased loved ones. Though he was censored by the Pope, it would prove to be too little too late for Martin Luther and for all of Christendom.
Ironically, many of Luther’s spiritual descendants in the Protestant communities of the present day strongly encourage tithing, giving ten percent of one’s wealth to God, with the hope of receiving temporal blessings in return (cf. Gen. 14:20). The offering of a monetary sacrifice is certainly a biblical practice. Our Lord did not begrudge the poor widow, for instance, when she gave to the Temple “everything she had, her whole living” (Mark 12:44). He praised her, in fact, because her sacrifice was offered with love. Likewise, He graciously received the costly jar of rare ointment with which a woman anointed Him. When the disciples protested, insisting the money from the sale of the ointment could have been used to feed the poor, Jesus rebuked them, saying, “She has done a beautiful thing to me” (Matt. 26:10). Once again, it was not the act so much as the disposition of the woman’s heart that affected the Lord. He further assured His followers that “whoever gives to one of these little ones even a cup of cold water because he is a disciple, truly, I say to you, he shall not lose his reward” (Matt. 10:42). If one can receive merit from Christ for donating to the Temple, offering an expensive gift for the love of Jesus, and giving a drink to a thirsty disciple, cannot one also receive merit for contributing to the building fund of a basilica, provided the gift is given with a pure heart? The question in all of this really has to do with the spirit in which the sacrifice is offered.
True piety, driven by a charitable heart, is required to receive an indulgence—for it is by love that the soul is transformed and made ready for heaven. Any work performed from a motive other than love is unacceptable to God. Regrettably, the temptation shall always exist to perform religious acts in a spirit of self-service (cf. Matt. 6:16-18), in which case it is appropriate to condemn not doctrine but the impiety of individuals.