Deduction in respect of contributions given to Political Parties u/s 80GGB & 80GGC

Section 80GGB & Section 80GGC: – Deduction in respect of contributions given to political parties.

Bare Act

Section 80GGB – Contribution done by an Indian Company – Political Contribution

In computing the total income of an assessee, being an Indian company, there shall be deducted any sum contributed by it, in the previous year to any political party or an electoral trust.

Provided that no deduction shall be allowed under this section in respect of any sum contributed by way of cash.

Explanation: – For the removal of doubts, it is hereby declared that for the purposes of this section, the word “contribute”, with its grammatical variation, has the meaning assigned to it under section 293A of the Companies Act, 1956 (1 of 1956).

Section 80GGC – Contribution by any other Person – Political Contribution

In computing the total income of an assessee, being any person, except local authority and every artificial juridical person wholly or partly funded by the Government, there shall be deducted any amount of contribution made by him, in the previous year, to a political party or an electoral trust.

Provided that no deduction shall be allowed under this section in respect of any sum contributed by way of cash.

Explanation: For the purposes of sections 80GGB and 80GGC, “political party” means a political party registered under section 29A of the Representation of the People Act, 1951. 

Analysis of Section 80GGB

Contribution by: Indian Company other than a Government Company and a company which has been in existence for less than three financial years.

Contribution to: Political party registered under section 29A of the Representation of the People Act, 1951 or an electoral trust duly registered and recognized by the competent authorities.

Mode of Contribution: Account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account.

Limit of contribution: There is no maximum applicable limit on the contributions made to political parties, under Section 80 GGB of the Income Tax Act. But as per the Companies Act 2013, companies can contribute up to 7.5% of their annual net profit (three years average).

Eligible Deduction: 100% of the contribution made

Procedural requirements to avail Section 80GGB deduction:

1. Board of director’s approval in a duly convened Board meeti ng

2. Amount of contribution to be disclosed in the Profit & Loss Account of the company.

3. The receipt issued by political party or electoral trust to produce a proof of the amount contributed. It should contain the name, address, PAN, TAN, registration number of the party/trust, name of the donor, mode of payment and the amount donated in words and numbers.

4. The Income Tax Return form is required to be filled up and submitted.

Analysis of Section 80GGC

Contribution by: Non corporate assesseeS or taxpayers.

• Eligible assessees – Individual, HUF, Firm, AOP/BOI & Artificial Judicial Person
• Ineligible assesses- Local authority, Artificial Judicial Person, who receives funding from the government either partially or completely, Companies.

Contribution to: Political party registered under section 29A of the Representation of the People Act, 1951 or an electoral trust duly registered and recognized by the competent authorities.

Mode of Contribution: Account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account.

Limit of contribution: There is no maximum applicable limit on the contributions made to political parties, under Section 80 GGB of the Income Tax Act.

Eligible Deduction: 100% of the contribution made

Procedural requirements to avail Section 80GGC deduction :

1. The receipt issued by political party or electoral trust to produce a proof of the amount contributed. It should contain the name, address, PAN, TAN, registration number of the party/trust, name of the donor, mode of payment and the amount donated in words and numbers.

2. The Income Tax Return form is required to be filled up and submitted.

Conclusion:

The decision to donate to a political party should be made with due research and analysis such that the money is used up honestly in the larger welfare. It is extremely important to have a detailed record to avail the tax deduction after contributing. All the regulations by the Income Tax Act should be duly followed to avail the tax deduction and benefits; otherwise, the request is liable to be rejected. These contributions are exempt from tax and make it much easier for the political parties.