Chapter VI A of the Income Tax Act contains various sub-sections of section 80 that allow an assessee to claim deductions from the gross total income on account of various tax-saving investments, permitted expenditures, donations, etc. Such deductions allow an assessee to considerably reduce the tax payable. Donation made to political parties or electoral trust is deductible under section 80GGB or 80GGC of Income Tax act 1961. Section 80GGC of Income Tax act, 1961 applies to individuals, and section 80GGB applies to companies. 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 (43 of 1951).
The entire contribution to a political party/multiple political parties or electoral trust is allowed for a tax deduction if it is not more than the taxable income of the eligible assessee. An Assessee has to maintain the proof of contribution made. The contribution to the political party should not be made in cash or kind. One may use other means for the donation through the bank like cheque, demand draft, via-transfer, debit or credit card, or internet banking. The entire contribution is allowed for a tax deduction if it is not more than the taxable income of the eligible assessee.
The following groups are specified under the Section 80GGC to make the political contribution- an individual, a Hindu Undivided Family (HUF), a firm, an Associaton of Persons (AOP), or Body of Individuals (BOI), and an Artificial Juridical Person. However, the taxpayer or assessee cannot be a local authority or an Artificial Judicial Person, who receives funding from the government either partially or completely.
The Income Tax Act, 1961 has not fixed any upper limit for the contributions made by the domestic companies to claim deductions. 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 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. However, the contribution should not be made in cash or kind. One may use other means for the donation through the bank like cheque, demand draft, via-transfer, debit or credit card, or internet banking. As per Section 182 of the Companies Act, 2013, it is not compulsory for the companies to disclose the name of the party to which they have donated. Any other expenses like television advertisements, advertising, radio jingles, and the latest social media posts which are sponsored by a political party can also be considered as a donation under the Section. If any company in India is putting an advertisement in any magazine which is run and owned by a political party, then also this amount will be exempted from tax as per Section 80GGB. As long as there is proof of the expenditure, any amount can be donated.
The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation in support of any political party. Readers are advised to exercise discretion and should seek independent professional advice prior to making any donations or investment decisions in respect of tax deductions/exemptions.