Section 80GGB of the Income Tax Act provides a framework for incentivising contributions made to political parties in India. This section allows to claim deductions on donations extended to political parties to promote transparency and encourage civic engagement in the democratic process. By offering tax incentives for such contributions, Section 80GGB significantly facilitates financial support to political parties while ensuring accountability and adherence to regulatory standards.
What is Section 80GGB?
Under Section 80GGB of the Income Tax Act, 1961, any Indian corporation or entity that provides donations to a political party or an electoral trust registered in India can receive a deduction for the contributed amount. The political party receiving the donation must be officially registered under Section 29A of the Representation of the People Act, 1951.
An electoral trust is a non-profit organisation established under Section 8 of the Companies Act 2013. It can accept voluntary contributions from other corporations and redistribute them to properly registered political parties.
What does the Registration of Political Parties entail under Section 29A?
The registration process for political parties is regulated by the provisions outlined in Section 29A of the Representation of the People Act, 1951. To seek registration under this section with the Election Commission, a party must apply within 30 days of its formation, following the guidelines established by the Election Commission of India.
This process is conducted per the directives outlined in Section 29A of the Representation of the People Act of 1951 and Article 324 of the Constitution of India. As part of the application procedure, the applicant party must publish its proposed name in two national and two local daily newspapers for two consecutive days. This publication invites objections, if any, from the public regarding the proposed name of the party.
Eligibility Requirements for Section 80GGB Tax Benefits
With the exceptions outlined below, all Indian companies registered under the Companies Act of 2013 are permitted to deduct donations made to recognised political parties or electoral trusts under Section 80GGB:
- Government agencies are excluded from this provision.
- Companies that have been operational for less than three years are also ineligible.
- Cash donations do not qualify for tax deductions. Only donations made through demand drafts, cheques, or electronic payments are eligible for tax breaks.
Contributions must be directed to a recognised political party per Section 29A of the Representation of the People Act (RPA), 1951.
Additionally, contributions to the electoral trust are eligible for tax deductions under Section 80GGC.
Deduction Limit Under Section 80GGB of the Income Tax Act
- There is no upper limit on the amount eligible for tax deduction. A qualifying company can deduct from its taxes any sum contributed to a registered political party (per Section 29A of the RPA, 1951).
- Contributions made by corporations are fully tax-deductible under Section 80GGB of the Income Tax Act.
Contributions under Section 80GGB
Under Section 80GGB, contributions encompass:
- Donations, payments, or subscriptions provided by a company either directly or indirectly to individuals engaged in activities that impact or are likely to influence public support for a political party or a political purpose.
- Expenditure incurred by a company, directly or indirectly, on any advertisement published in any publication, such as brochures, tracts, souvenirs, or pamphlets. These publications may not be directly affiliated with a political party but may serve to promote the interests of a political party, thus constituting a contribution for political purposes.
Guidelines and Requirements for Claiming Deductions under Section 80GGB
Section 80GGB describes the regulations and prerequisites concerning donations to political parties in India. Here are the key points to remember:
- There is no maximum limit on contributions to political parties under Section 80GGB of the Income Tax Act. However, according to the Companies Act 2013, companies can donate up to 7.5% of their annual net profit (average over three years). The company must disclose the amount contributed and the recipient’s political party in its Profit and Loss account for the relevant financial year.
- Cash contributions are prohibited under Section 80GGB. Donations to political parties must be executed via alternative payment methods such as cheques, demand drafts, or electronic transfers.
- There is no restriction on the amount contributed to a political party. Still, companies must utilise an approved payment route and maintain documentary evidence of the transaction.
- Contributions made via electoral bonds do not require the party’s name to be mentioned in the company’s Profit and Loss Account. Only the amount paid needs to be disclosed.
- Certain exceptions apply to contributions made under Section 80GGB:
- Public Sector Enterprises
- Companies with an age of three years or less.
- According to recent guidelines, any advertisement by a company on a platform owned by a political party is considered a contribution under Section 80GGB, making it eligible for income tax deduction. This includes social media, magazines, newspapers, etc.
Essential Aspects Regarding Contributions to Political Parties in India
If your company is considering contributing to a political party in India, it’s crucial to understand the critical points outlined in the Income Tax Act 1961. Here’s what you need to know:
- The political party that accepts the donation must be officially registered under Section 29A of the Representation of People Act of 1951.
- Any registered company or enterprise in India can contribute to any political party.
- Electoral trusts receiving donation amounts must also be duly registered and recognised by competent authorities.
- Companies can donate to multiple political parties, and all contributions made under Sec 80GGB are aggregated for income tax deduction purposes.
- Companies can claim a 100% deduction for the amount donated to a political party under Section 80GGB. Hence, you can donate to political parties according to your preference and claim deductions in your income tax.
- Maintaining proper records of the payments made and adhering to all regulations specified in the Income Tax Act 1961 is essential. Please comply with the procedure to avoid the competent authorities rejecting your deduction claim.
- Cash payments are strictly prohibited under Section 80GGB. Acceptable modes of payment include cheques, demand drafts, electronic transfers, or pay orders to the political party’s bank account. This ensures transparency in political funding and enables tracking of funds received and expended.
Final Words
In summary, Section 80GGB of the Income Tax Act incentivises contributions to political parties in India, promoting transparency and civic engagement. It allows taxpayers to claim deductions on such donations, fostering financial support while ensuring adherence to regulatory standards.
Businesses must navigate Section 80GGB carefully, understand its nuances, and comply diligently. With no upper limit on deductible amounts and the ability to donate to multiple parties, companies can shape the political landscape while enjoying tax benefits. However, using permissible payment modes and maintaining proper documentation is crucial to avoid discrepancies. By following these guidelines, businesses can contribute responsibly to democracy while maximising tax benefits under Section 80GGB.