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To encourage more contributions towards political parties, there is a provision of exemption from taxation under Section 80GGB. This section of the Income Tax Act 1961 mainly deals with donations and contributions made by Indian Companies towards political parties or electoral trusts.
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 the 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 it to the duly registered political parties.
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 draughts, 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.
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 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 in its advantage.
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:
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: –
Which documents are required to claim deduction under section 80GGB?
You need the receipt of donation, which shall include name, address, PAN, TAN, registration number of donor and mode of payment, amount.
What is the maximum deduction available under section 80GGB?
Companies can claim up to 100% of their donation as long as it is less than their total taxable income. However, Companies Act 2013 states that the contribution cannot be more than 7.5% of their annual net profit (average of 3 years).
Can a corporation contribute or donate to several political parties?
Yes, a corporation or an enterprise can make donations or contributions to several political parties. It depends on the company to decide how many companies they wish to contribute or donate to.
Is foreign funding allowed under Section 80GGB of the Income Tax Act, 1961?
No, foreign funding is not allowed under Section 80GGB of the IT Act, 1961.
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