Tax Deduction for Contribution or Donation to Political Parties

Article explains What is the Political Party, What is the Electoral Trust, Who eligible to contribute or donate to the Electoral Trust or Political Parties, What is the Donation to Political Parties, What is Section 80GGC of Income Tax Act, 1961, What is the Eligibility Criteria for Claiming Tax Benefits under Section 80GGC, What is Section 80GGB of Income Tax Act, 1961,  Deduction Limit under Section 80GGC and What is the Eligibility Criteria for Claiming Tax Benefits under Section 80GGB?

1. What is the Political Party?

Political party means a group of persons organized to acquire and exercise political power. In our country, there are several political parties that stand for the election. The presence of the political party is actually a healthy situation for the nation. It gives people a choice to make a more evolved and effective decision.

2. What is the Electoral Trust?

Electoral Trust is a non-profit organization formed in India for orderly receiving contributions from any person. Electoral Trusts part of the ever-growing electoral restructurings in the country. Electoral Trusts are designed to bring in more transparency in the funds provided by corporate entities to the political parties for their election-related expenses. However, the objective of an electoral trust is not to receive any profit or pass any direct or indirect advantage to its members or contributors.

3. Who eligible to contribute or donate to the Electoral Trust or Political Parties?

Electoral Trust can receive contributions from various sectors. Like

• Indian citizens.
• Domestic companies which are registered in India.
• Firm or Hindu Undivided Family.
• Group of persons or individuals, who reside in India.

An electoral trust can’t accept contributions And Donations from

• Any person who is not an Indian Citizen.
• Foreign Entity.
• Any other electoral trust.

4. What is the Donation to Political Parties?

Political Parties receive huge sums of money in the form of donations and contributions from corporate, trusts and individuals. Section 29C of the Representation of People Act, 1951 says that political parties are required to submit contribution details received in excess of Rs.20,000/- from any person or a company.

Which Sections deals in Donation or Contribution to Political Parties for exemption of tax purpose?

Section 80GGC for individuals and 80GGB for company’s deals in Donation or Contribution to Political Parties for taxation purposes.

5. What is Section 80GGC of Income Tax Act, 1961?

Section 80GGC under the Income Tax Act, 1961 provides income tax deduction benefits on donations made by any individual to political parties subject to certain conditions. It should be noted that there is no upper limit specified under section 80GGC, which means any amount contributed to a political party can be claimed as a tax deduction.

What is the Eligibility Criteria for Claiming Tax Benefits under Section 80GGC?

• Under section 80GGC, only individual taxpayers are allowed to claim tax benefits.
• To claim tax benefits, donations should not be made in cash. All other modes of donations are eligible for claiming an income tax deduction.
• Donations must be made to a registered political party under section 29A of Representation of People Act (RPA), 1951. Donations made to electoral trust also will be eligible for claiming tax deduction under section 80GGC.

6. What is Section 80GGB of Income Tax Act, 1961

Section 80GGB of the Income Tax Act, 1961, deals in any Indian company or enterprise that donates to a political party or an electoral trust registered in India can claim a deduction for the amount contributed.

Deduction Limit under Section 80GGC

The Donation made u/s 80GGC are 100% tax-deductible.

What is the Eligibility Criteria for Claiming Tax Benefits under Section 80GGB?

• Cash contributions are not allowed under Section 80GGB. Therefore, the respective contributions to political parties must be made through other modes of payments such as Cheque, Demand Draft or Electronic Transfer.
• There is no maximum applicable limit on the contributions made to political parties, under Section 80GGB 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). It is necessary for the companies to disclose the amount contributed and the name of the political party in its Profit and Loss account for the said financial year.

Hence, you are free to make donations to political parties as per your preference and claim deductions in your income tax for the same and you can concern the income tax consultant for this. It is essential that you keep a proper record of the amount being paid and comply with all the regulations specified in the Income Tax Act 1961 and Companies Act, 2013. If you do not follow the set procedure, your claim for deduction might be rejected by the competent authorities.