Political party donation

India is the largest democracy on this planet and the backbone of this is elections and enthusiasm of citizens towards their motherland. Everyone is familiar with the fact that every year lots of money is expended in election. But where this money comes from obviously it is us. To applaud the efforts and contribution two sections has exclusively been reserved for allowing 100% deduction for the same.

Introduction

For encouraging more contributions towards the political parties, there are some provisions of exemption from taxation under Sec 80 GGB. 80GGB of the Income Tax Act 1961 deals with the donations and contributions made by the Indian Companies towards political parties or the electoral trusts.

Definitions

Political party: Political party means a party registered under section 29A of Representation of the People Act, 1951. A political party is an organized consist group of people who have the same ideology, or who otherwise have the same political positions.

Electoral Trust: An Electoral Trust is a Trust set up by companies with the sole objective to distribute the contributions received by it from other Companies and individuals to the political parties.

Section 80GGB

Contribution given by Indian companies to political parties or electoral trust in the previous year is allowed as deduction under this section.

No limit is specified under this section. But as per Companies Act 2013, companies can contribute maximum 7.5% of their annual net profit (three years average). Also the company has to disclose the amount contributed and name of political party in the statement of profit and loss for the financial year.

However, no deduction will be available if the mode of payment is cash.

Meaning of contribute

The word contribute here means the same as in section 182 of the Companies Act, 2013, which provides that –

A donation or subscription or payment given by a company to a person for carrying on any activity which is likely to effect the public support for a political party shall be deemed to be contribution to a political party.

The expenditure incurred, directly or indirectly, by a company on advertisement in any publication by or on behalf of a political party or for the advantage of it, shall be deemed as a contribution to political party.

Section 80GGC

Contribution given by any person to political parties or electoral trust in the previous year is allowed as deduction under this section.

100% deduction is allowed in this section.  No limit is specified under this section but the contribution must not exceed the total income of the claimant.

However, no deduction will be available if the mode of payment is cash. Also the contribution in kind is not acceptable.

Exception

This deduction is not available to:

1. Local authority
2. Artificial judiciary person, partly or wholly funded by the government.

Frequently asked questions

1. I have contributed to a registered political party but the former has not fought the election even once can the contribution be valid under the above sections?
   Yes, the contribution is valid because according to the provision a person could contribute to any registered political party disregarding the fact whether it has fought the election or not.
2. Are there any exceptions to section 80GGB?
   There are two exception of section 80GGB
   • The foreign company making contribution cannot claim deduction.
   • Cash payments are not accepted for the purpose of deduction.
   • Deduction is not allowed for making any contribution to any unregistered political party.
3. Are HUF or firm also allowed deduction under this section?
   Yes, HUF and firm are also covered under these sections.
4. Do documentation is also required in case of contribution to electoral trust?
   Yes, documentation is necessary in each case for transparency but you need to mention the amount of contribution in this case in the statement of profit and loss of the financial year.
5. Can a foreign resident is allowed deduction under section 80GGC?
   No, a foreign resident cannot claim the deduction.