Section 80GGC of Income Tax Act: Deduction Limit & Exceptions

The Income Tax Act 1961 allows taxpayers to claim a deduction against the donations made to political parties without any limit under Section 80GGC i.e., the entire donation can be claimed as a deduction. This allows taxpayers to save a good portion of their taxes. However, the deduction is allowed only under the old tax regime and is disallowed under the new tax regime.

What is Section 80GGC?

Section 80GGC provides for tax deductions with respect to donations made by taxpayers towards political parties or any electoral trusts. Section 80GGC of the Income Tax Act was introduced to bring about transparency in electoral funding and free it from corruption. It also encourages individuals to financially support the political system and claim tax deductions against such donations to lower their tax liability.

Who Can Avail 80GGC Deduction? 

Any person other than:

• Companies,
• Local authorities, and
• Artificial juridical person which is wholly or partly funded by the Government.

Thus, any individual, Hindu Undivided Family (HUF), an AOP or BOI, a firm, and an artificial juridical person which is not wholly or partly funded by the government are eligible to claim deduction under Section 80GGC.

It is also necessary to keep in mind the taxpayer must pay the taxes under the old tax regime to claim the benefit under section 80GGC.

Which Contributions and Donations can be Deducted under Section 80GGC?

Deduction under 80GGC can be claimed only if you make donations or contributions to: 

• A political party; or 
• An electoral trust. 

Note: Political parties must be registered under section 29A of the Representation of the People Act, 1951. Any donation/contribution made to any other political party would not qualify for deduction u/s 80GGC.

Section 80GGC Deduction Limits

There is a certain limitation for deduction under Section 80GGC of the income tax. Here is the list of the 80GGC exemption limit:

• 100% of a taxpayer’s donation to a registered electoral trust or political party can be claimed as deduction. However, since this section is under Chapter VIA deductions, the total deduction cannot surpass the total income of an individual donating.
• Contributions or donations to political parties or electoral trusts in cash or kind are not eligible for tax deductions of Section 80GGC. This amendment was brought into effect from 2013-2014 onwards.
• Contributions or donations should be made to political parties through legitimate banking portals, such as Internet banking, credit cards, debit cards, cheques, demand drafts, etc., to claim deductions under Section 80GGC.
• If you fail to provide sufficient documents while claiming the deduction and filing a tax return, then the authority has the power to deny the tax deduction claim under this section.

Documents Required for Section 80GGC

In order to become eligible for claiming tax deduction under this section, you have to submit the following documents:

• A receipt for proof of donation. 
• The receipt must contain the following details like PAN, TAN, address of the political party, fund registration number, payment method, and donor name.
• Income tax return form must be completed and submitted within a specific time.

Exceptions to Section 80GGC Deduction

• When contributions to a political party are made through cash, they cannot be claimed as a deduction under this Section. 
• When gifts or donations are made in kind, they cannot be claimed as tax deductions under this Section.

Difference Between Section 80GGB and Section 80GGC

Under Section 80GGB of the Indian Income Tax Act, any Indian company making contributions to political parties can claim a deduction for the donated amount.

Similarly, under Section 80GGC, individual taxpayers can claim a deduction for the amount donated to political parties.

In what Situations is an Individual Ineligible to Claim a Tax Deduction under Section 80GGC?

These are the following scenarios in which individuals are ineligible to claim a tax deduction under Section 80GGC:

• An individual who opts to pay tax under the new tax regime.
• Individuals who contribute to a political party using cash payments are not eligible for tax deductions under this section. Donations made through demand draft, cheque, or online payments are the accepted modes for qualifying tax deductions.
• Individuals who provide gifts or donations in forms other than monetary contributions cannot claim tax deductions under Section 80GGC.

Section 80GGC of the Income Tax Act aims to ensure transparent electoral funding and minimise corruption. It encourages individuals to financially support the political system by allowing them to claim tax deductions for such donations, thereby reducing their tax liability.

Procedures to Avail Tax Deductions u/s 80GGC

The procedure for obtaining the tax deduction referred to under section 80GGC is quite simple and convenient to follow.

You can file the income tax return as you generally do. However, while filing the ITR, you have to submit the amount of the contribution under section 80GGC in the allotted space. If you are a salaried individual, you must submit relevant details of the donation to your employer so that he/she can include the same in the Form 16.

The party should acknowledge the donation made to that political group. You will also have to provide the TAN and PAN of the political party when you claim the deduction. In addition, you can claim a deduction only if your employer issues a certificate stating that a deduction took place from your account.

Conclusion

To avail of Section 80GGC tax benefit, you should opt to pay taxes under the old tax regime and you should have a detailed record of the donation you made. Accordingly, it is important to follow all relevant regulations of the Income Tax Act. Do remember that you are not eligible for any deduction if you make any donations in kind to the political party and this includes gifts as well.