Tax Implications: Political Party

CA Anshika Patni

AS REGARDS taxation of political parties, the income tax law prevalent in India has shown a kind and compassionate treatment. Section 13A of the Income-tax Act, 1961 confers tax-exemption to recognized political parties for income from house property, income by way of voluntary contributions, income from capital gains and income from other sources. In other words, only income under the head salaries and income from business or profession are chargeable to tax in the hands of political parties in India.

These political outfits can enjoy the above-said tax-exemption if the following conditions are satisfied:

a) If such political party keeps and maintains such books of accounts and other documents as would enable the assessing officer to properly deduce the income therefrom

b)  In respect of each such voluntary contribution [other than contribution by way of electoral bond] in excess of twenty thousand rupees, such political party keeps and maintains a record of such contribution and the name and address of the person who has made such contribution.

c) the accounts of such political party should be audited by the Chartered Accounatnt.

d) The said political party should receive any donation in excess of Rs 2,000 by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through electoral bond (that is, cash donation in excess of Rs 2000 is not allowed) (wef A.y 2018-19).

Since the income of political parties are governed by the special provisions of section 13A of the Income tax Act, 1961, the provisions of Chapter IV-D of the Act which are applicable for normal profits and gains of normal profession can not be applied in the cases of political parties. Further, income of political parties from voluntary contributions cannot be said to be income from profession so as to attract section 44AA or 44AB or section 271B of the Income-tax Act. However, the political parties are required to maintain the accounts and getting them audited by a chartered accountant, as provided u/s 13A for claiming exemption.

Under section 139(4B) of the Income tax Act, 1961, political parties are however under a statutory obligation to file return of income in respect of each assessment year. If and when the total income of a political party exceeds the maximum amount, which is not chargeable to tax, the liability of the political party to file ROI voluntarily arises. For this purpose, total income has to be computed without giving effect to provisions of section 13A. In case of political parties, the returns are required to be signed by the ‘ Chief Executive Officer’ of the parties.

Further, the amendment made in 2003 to the Representation of the People Act, 1951 requires that the treasurer of every political party must file a declaration in respect of donations exceeding Rs. 20,000 at a time.

Accordingly, the party treasurer must file a report of contributions received to the Election commission before the due date for furnishing the return of income under Section 139 of the Income tax Act. More importantly, section 13A has been amended and tax exemption for a political party is contingent upon the submission of the report by the party treasurer. However, the parties can receive any amount below Rs 20,000  from any person without submitting the report from the party treasurer.

Section 80GGB is a new insertion in the Income-tax Act, 1961. This enables Indian companies to get full deduction in their income-tax assessments for contributions made to political parties. Interestingly, there is no ceiling fixed on the amount of such contribution. Section 80GGC gives similar deduction for non-company taxpayers. Advertisements in souvenirs published by political parties would also be eligible for deduction. However cash donation is not eligible for deduction under the aforesaid section

For this purpose, the term “political party” means a political party registered under section 29A of the Representation of the People Act, 1951.

NOTES:

1. Tax exemption of political party is governed by – Section 13A

2. Return of Income to be filed by Political Party – Section 139 (4B)

3. ITR -7 to be used for filing ROI-Political Parties to File ITR-7 electronically under digital signature 

4. Deduction to the person giving Donation to Political Party:

• Companies- Section 80GGB
• Non-Companies – Section 80GGC

5. Political part to be registered u/s 29 of Representation of People act.

6. Books of Political Party should be audited in any case to get exemption.

7. Exemptions available u/s 13A:

• Income from H/P
•  Income from Voluntary Contribution
•  Income from CG
•  Income from OS

8. Proper records should be maintained and a declaration is to be filed with Election Commission regarding receipt of Donation exceeding Rs. 20000 before the due date of furnishing the Income tax Return.

9. Contribution exceeding Rs. 2000 should be received by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through electoral bond (wef A.y 2018-19)

10. Exemption u/s 13A is now contingent to the filing of declaration to EC.

(Republished With Amendments)