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Tax Deductions under Section 80GGB: A Detailed Guide

Tax Deductions under Section 80GGB: A Detailed Guide

The Income Tax Act of 1961's Section 80GGB allows Indian corporations to deduct their payments to registered political parties or electoral trusts from their taxes. Section 80GGB exempts political party donations from federal taxation in an effort to promote more contributions. The Income Tax Act of 1961's provision primarily addresses gifts and contributions given to political parties or electoral trusts by Indian corporations.

 

Table of Contents

 

Tax Deductions Applicable under Section 80GGB

Any Indian business or organisation that donates to a political party or electoral trust that is registered in India may deduct the amount donated under Section 80GGB of the Income Tax Act, 1961. According to Section 29A of the Representation of the People Act, 1951, the political party that receives the donation has to be registered. A non-profit organisation established under Section 8 of the Companies Act of 2013 is known as an electoral trust. Other firms may voluntarily donate to an electoral trust, which will subsequently distribute the funds to legally recognised political parties.


Eligibility Criteria for Claiming Political Party Donation Deduction

The following requirements must be met by the company to claim a tax deduction on the amount contributed: 

  • The donation amount must never be in cash to be eligible for benefits. All other payment methods, such as demand drafts, electronic payments, and checks, are taken into account for benefit claims. This is done to make sure that records are kept of the funds provided to political parties. 

  • Donations must be donated to a political party that is officially registered in accordance with Section 29A of the Representation of the People Act, 1951. Donations paid to the electoral trust are likewise eligible for the deduction under Section 80 GGC.

  • The donation can be accepted by anyone, with the exception of local government employees and those who receive full or partial government funding.


Exceptions 

All Indian enterprises registered under the Companies Act of 2013 are permitted to deduct contributions paid to recognised political parties or electoral trusts under Section 80GGB, with the following exceptions: 

  • A government agency.

  • A business that has just been up and running for three years. 

  • There are no tax benefits for cash gifts. The only additional donation methods that are eligible for a tax deduction under Section 80GGB are electronic payments, demand drafts, and checks.

A recognised political party is required to receive contributions, per Section 29A of the Representation of the People Act (RPA), 1951. Under section 80GGC, contributions made to the electoral trust are also tax deductible.


Contributions under Section 80GBB

Under the IT Act's Section 80GGB, contributions can be sent to:

  • A business payment, subscription, or donation made to an individual involved in any action that could sway public opinion in favour of a political party or other political objective.

  • The amount of money a business spends on advertisements in any publications (brochures, tracts, mementos, or pamphlets) that are created, either directly or indirectly, on behalf of political parties. The magazine may not be directly associated with a political party but yet benefit from it when it takes the shape of a political gift.


Deduction Limit under Section 80GGB

  • The amount that can be subtracted from taxes is not capped. According to Section 29A of the RPA, 1951, a qualifying corporation may deduct any amount given to a registered political party from its taxes.

  • Under section 80GGB of the Income Tax Act, corporate donations are fully tax deductible.


Registration of Political Parties under Section 29A

Under Section 29A of the Representation of the People Act, 1951, political parties are required to register. If a party wants to register under this section, it must apply to the commission using the Election Commission of India's rules within 30 days of the party's founding date. Section 29A of the Representation of the People Act, 1951 and Article 324 of the Commission of India provide recommendations for doing this. To find out if there are any objections, the applicant party is requested to publish the proposed name of the party for two days in each of two local and two national daily media.


Essential Rules & Guidelines to Claim Deduction under Section 80GGB

The guidelines governing donations to political parties in India are outlined in Section 80GGB. The following are the key things to keep in mind: 

  • Contributions in cash are prohibited per Section 80GGB. Therefore, additional payment methods like checks, demand drafts, or electronic transfers must be used to make the appropriate donations to political parties.

  • Under Section 80GGB of the Income Tax Act, payments to political parties are not subject to a maximum applicable limit. However, in accordance with the Companies Act of 2023, the relevant company must include the name of the political party and the amount contributed in its Profit and Loss statement for the relevant fiscal year.

  • If a contribution was made using electoral bonds, the party's name need not be shown in the company's profit and loss statement. All that needs to be stated is the payment amount. 

  • According to the most recent rules, any business advertisement on a political party-owned platform would be regarded as a contribution for the purposes of Section 80GGB. As a result, income tax deduction is available. Newspapers, periodicals, and social media are examples of this.

  • The amount that can be contributed to a political party is limitless, but businesses must pay the required amount through a recognised method and maintain a record of the transaction.

  • Section 80 GGB allows for the following exceptions to the contributions made. These are an organisation in the public sector and a business that is no more than three years old.


What You Should Know about Contributions to Political Parties in India

If your organisation has chosen to donate to the finances of a certain Indian political party, you should be familiar with the fundamentals of Section 80GGB as per the Income Tax Act of 1961. Here are some crucial things to think about in this regard: 

  • As long as it is registered under Section 29A of the Representation of the People Act, 1951, any business or company with an Indian registration can donate money to any political party. Additionally, donations may be sent to several parties. All contributions made to the political party or parties will be pooled for an income tax deduction under Section 80GGB, regardless of the amount contributed.

  • The relevant authorities should additionally register and recognise the electoral trust that is receiving the donation money. 

  • No cash payments are accepted under Section 80GGB. Demand drafts, electronic transfers, pay orders made to the party's bank accounts, and checks are the only forms of payment that are accepted. This is done to monitor the money that is received and spent, as well as to guarantee equitable procedures in political finance.

  • Under Section 80GGB, your corporation is eligible to deduct 100% of the political party subscription. As a result, you can deduct political party contributions from your income tax in accordance with your preferences. It is imperative that you adhere to all rules outlined in the Income Tax Act of 1961 and maintain an accurate record of the amount paid. Should you fail to adhere to the established protocol, the appropriate authorities may reject your claim for deduction.


Conclusion

Tax deductions under Section 80GGB of the Income Tax Act are available to Indian corporations and taxpayers who donate to electoral trusts or registered political parties. To be eligible for tax deductions, donors must make sure their contributions fulfil the requirements stated in the Income Tax Act and submit the required paperwork to the Income Tax Department. The Indian government hopes to foster increased political finance openness and greater engagement in the democratic process by offering tax incentives for political donations.


Frequently Asked Questions

Q1. Is donation to a political party deductible?

Political party donations are tax deductible. Section 80GGC of the Income Tax Act of 1961 covers individuals, allowing them to claim a deduction for any amount donated to political parties or electoral trusts. Section 80GGB of the Income Tax Act of 1961 covers companies, allowing them to claim a deduction for any donation made by companies to political parties or electoral trusts.



Q2. Who can claim tax deductions under Section 80GGB?

Under Section 80GGB, Indian corporations and taxpayers who have donated to electoral trusts or registered political parties are eligible to claim tax deductions.



Q3. What is the maximum limit for deduction under Section 80GGB?

The amount donated to the political party or electoral trust is the maximum deduction allowed under Section 80GGB.



Q4. Are there any restrictions on the amount donated to a political party?

The amount of money that can be donated to an electoral trust or political party is not capped.



Q5. Can a company donate to several political parties?

A business or organisation can donate to various parties. The decision on which party to donate money to and how much money to donate to each party rests with the firm or organisation. The firms require the specifics of these donations and contributions to be included in their financial accounts. Reporting the amount and the name of the party is required. Electoral bonds are an option for the firm to donate through if it doesn't want to reveal the party's name.



Q6. Can individuals or companies claim deductions for donations to individual candidates?

No, only donations made to electoral trusts or registered political parties are eligible for tax deductions under Section 80GGB.



Q7. Can donations to unregistered political parties be claimed under Section 80GGB?

No, under Section 80GGB, tax deductions are only available for contributions given to electoral trusts or registered political parties.



Q8. Can donations to political parties outside India be claimed for deductions under Section 80GGB?

No, Section 80GGB only allows tax deductions for contributions given to Indian political parties that are registered.



Q9. What is the maximum deduction under section 80GGB?

As long as the donation is less than their entire taxable income, businesses are eligible to claim up to 100% of it. But according to The Companies Act of 2013, the contribution cannot exceed 7.5% of their net earnings for the year (averaged over three years).



Q10. How is the amount of tax deduction under section 80G calculated?

Two headings are used to categorise gifts under Section 80G. Both the maximum and minimum limits apply to the categories. These are then separated into smaller groups. Any gift that is above the upper limit may be eligible for a tax deduction of up to 50% or 100%, depending on the category to which it belongs.



Q11. Is there any prescribed mode of payment for donations to political parties for claiming tax deduction?

Account payee check or any other electronic means of payment should be used as the approved method of payment for donations under 80GGB. Under this clause, monetary payments are not allowed as deductions. Donations of tangible goods, such as clothing, books, or medications, are not, however, deductible under Section 80G.



Q12. What is the difference between Section 80GGB and 80GGC?

The assessee is the core element of the distinction between these two sections. An individual taxpayer is the assessee under section 80GGB. In contrast, a business or enterprise is an assessee under Section 80GGB. In terms of the supporting material and representation needed in the financial statements, both portions are comparable. To claim the deduction allowed by both sections of the Income Tax Act of 1961, the taxpayer must present the receipt that the political party received.



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