Section 80GGB - Tax Deduction On Political Parties Contribution

To encourage more contributions to political parties, Section 80GGB provides an exemption from taxation. This section of the Income Tax Act 1961 mainly deals with donations and contributions made by Indian Companies to political parties or electoral trusts. In this article, take a quick look at the different aspects of the Section 80GGB of the Income Tax Act.

• Applicable Tax Deductions under Section 80GGB
• Eligibility Requirements under Section 80GGB
• Registration of Political Parties
• Deduction Limit under section 80GGB
• Contributions under section 80GGB
• Rules and Conditions to claim 80GGB deduction
• Key Points related to contributions made to political parties 

Tax Deductions under Section 80GGB

As per Section 80GGB of the Income Tax Act, 1961, 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. The political party receiving the donation must be registered under Section 29A of the Representation of the People Act, 1951. An electoral trust is a non-profit company created under Section 8 of the Companies Act, 2013. An electoral trust can receive voluntary contributions from other companies and then reallocate them to the duly registered political parties.

Eligibility Requirements for Section 80GGB Tax Benefits

With exceptions listed below, all Indian businesses registered under the Companies Act of 2013 are allowed to deduct donations made to recognised political parties or electoral trusts under Section 80GGB:

1. A government agency

2. A company that has only been in operation for three years.

3. Cash donations are not eligible for tax breaks. The only extra donation methods that qualify for a tax deductible under Section 80GGB are demand drafts, cheques, and electronic payments.

Contributions must be made to a recognised political party, according to Section 29A of the Representation of the People Act (RPA), 1951. Contributions to the electoral trust are also tax deductible under section 80GGC.

What is the Meaning of Registration of Political Parties under Section 29A?

Registration of political parties comes under the rules and regulations of Section 29A of the Representation of the People Act, 1951. A party seeking registration under this Section must apply to the commission within 30 days following its date of formation as per the guidelines prescribed by the Election Commission of India.

This is done by the guidelines conferred by Article 324 of the Commission of India and Section 29A of the Representation of the People Act, 1951. The applicant party is asked to publish the proposed name of the party in two local daily newspapers and two national daily newspapers, on two days in the same newspapers, to check for objections, if any.

Deduction Limit Under Section 80GGB of the IT Act

1. There is no maximum amount that can be deducted from taxes. A qualifying firm may deduct from its taxes any sum provided to a registered political party (under Section 29A of the RPA, 1951).

2. Donations made by corporations are totally tax-deductible under section 80GGB of the Income Tax Act.

Contributions Under Section 80GGB

Contributions under Section 80GGB of the IT Act include:

1. A business donation, payment, or subscription paid to a person engaging in any activity that has the potential to influence or otherwise alter public support for a political party or other political aim.

2. The amount spent by a company on advertisements in any publications—whether brochures, tracts, keepsakes, or pamphlets—produced on behalf of political parties, either directly or indirectly. In the form of a political donation, the publication may not be directly linked to a political party but yet act to its advantage.

Disallowance in respect of advertisement expenditure

While computing business income, certain business expenditures are disallowed under section 37(2B). One of them being an expenditure on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party. However, the business entities can still claim deduction in respect of the said expenditure it accounts it as donation and receives the donation receipt from the political party under section 80GGB from its Gross Total Income.

Rules and Conditions to Claim Section 80GGB Deductions

Section 80GGB specifies the rules and conditions related to donations being made to political parties in India. Following are the essential points that you must remember:  

• 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, 2103 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.
• As per the latest guidelines, any advertisement from a company on a platform owned by a Political Party would be considered as a contribution under Section 80GGB. It is therefore eligible for income tax deduction. This includes social media, magazines, newspapers, etc.
• There is no limit on the amount being contributed to a political party, but it is necessary for a company to pay the amount via an acceptable route and keep a documentary record of the same.
• There are certain exceptions to the contributions made under Section 80 GGB:  
  • A Public Sector Enterprise
  • A company that has an age of three years or less.

Key Points Related to Contributions Made to Political Parties in India

If your company is contemplating contributing to a political party in India, it is essential for you to understand a few points. Here are the key aspects that you must remember as specified in the Income Tax Act 1961: –

• 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.
• 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.
• Under no circumstances are cash payments allowed under Section 80GGB. The only acceptable modes of payment include cheques, demand draft, electronic transfer, or a pay order towards the bank account of the political party. This is to ensure transparency in political funding and to keep track of the money received and spent.
• The Company can claim 100% deduction against the amount donated to a political party under section 80GGB. Therefore, you are free to make donations to political parties as per your preference and claim deductions in your income tax for the same. 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. If you do not follow the set procedure, your claim for deduction might be rejected by the competent authorities.