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April 22, 2021

Know all about Political Donation

by Mahesh Mara in Income Tax

Know all about Political Donation

In order to encourage more contributions towards political parties, there is a provision of exemption from taxation under Section 80GGB and 80GGC. This section of the Income Tax Act 1961 mainly deals with donations and contributions made by Indian Companies and individuals towards political parties or electoral trusts. In this article we will learn about the provisions related to donation made to political parties

What are the various deductions with respect to political parties donation under Income tax act?

The following are the various deductions with respect to political parties’ donation under Income tax act:

A. Section 80GGB: Deductions with respect to donation made to political parties by Indian Company

Section 80GGB specifies the rules and conditions related to donations being made to political parties in India. Following are the main points to be considered under section 80GGB:  

  • Any company or enterprise that is registered in India is allowed to make contributions to any political party they wish to.
  • A company is allowed to make contributions to any number of political parties that it wishes to support. All contributions made under Sec 80GGB will be combined for the income tax deduction.
  • Cash contributions are not allowed under Section 80 GGB. Therefore, contributions to political parties must be made through other modes of payments such as Cheque, Demand Draft or Electronic Transfer or any other mode if specified. This is to ensure transparency in political funding and to keep track of the money received and spent.
  • Under section 80GGB there is no maximum applicable limit on the contributions made to political parties. But Companies Act 2013, specifies that a companies can contribute up to 7.5% of their annual net profit (three years average). It is necessary that the respective company discloses the amount contributed and the name of the political party in its Profit and Loss account for the said financial year.
  • If the amount has been contributed via electoral bonds, then there is no requirement for mentioning the name of the party in the Profit and Loss Account of the company. Only the amount paid has to be mentioned.
  • The political party that is receiving the donation must be duly registered under Section 29A of the Representation of People Act, 1951.
  • The electoral trust receiving the donation amount must be duly registered and recognized by the competent authorities.

What is the amount of deduction under 80GGB?

The Company can claim 100% deduction against the amount donated to a political party under section 80GGB. Therefore, company are free to make donations to political parties as per their preference and claim deductions in their income tax for the same. It is essential for the company keep a proper record of the amount being paid and comply with all the regulations specified in the Income Tax Act 1961.

B. Section 80GGC: Deductions with respect to donation made to political parties by person other than company

Section 80GGC specifies the rules and conditions related to donations being made to political parties in India. Following are the main points to be considered under section 80GGC:  

  • A person other than company is allowed to make contributions to any number of political parties that it wishes to support. All contributions made under Sec 80GGC will be combined for the income tax deduction.
  • Cash contributions are not allowed under Section 80 GGC. Therefore, contributions to political parties must be made through other modes of payments such as Cheque, Demand Draft or Electronic Transfer or any other mode if specified. This is to ensure transparency in political funding and to keep track of the money received and spent.
  • Under section 80GGC there is no maximum applicable limit on the contributions made to political parties.
  • If the amount has been contributed via electoral bonds, then there is no requirement for mentioning the name of the party in the Income tax return. Only the amount paid has to be mentioned.
  • The political party that is receiving the donation must be duly registered under Section 29A of the Representation of People Act, 1951.
  • The electoral trust receiving the donation amount must be duly registered and recognized by the competent authorities.

What is the amount of deduction under 80GGC?

The person other than company can claim 100% deduction against the amount donated to a political party under section 80GGC. Therefore, assessees are free to make donations to political parties as per their preference and claim deductions in their income tax for the same. It is essential for the assessee keep a proper record of the amount being paid and comply with all the regulations specified in the Income Tax Act 1961.

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