Indian businesses may enjoy tax deductions on payments made to registered political parties or an electoral trust under Section 80GGB of the Income Tax Act, 1961. Any amount donated to a political party may be claimed as tax deductible as per this section. 

Section 29B of the Representation of the People Act of 1951 stipulates that the political party receiving the funding must be registered. However, this is subject to provisions under The Companies Act, 2013.

Eligibility Requirements for Section 80GGB Tax Benefits

All Indian businesses registered under the Companies Act of 2013 are eligible to get tax deductions. Here are some exceptions: 

  • A government enterprise

  • A business that has only been operating for three years

  • Donations made in cash 

Contributions under Section 80GGB

Contributions u/s 80GGB of the Income Tax Act include- 

  • A donation, payment, or subscription made by a business to a person engaged in any activity that has the potential to have an impact on or affect public support for a political party or other political objective

  • The amount spent by a business on any advertisements in any publications—whether they be brochures, tracts, mementos, or pamphlets—that are produced on behalf of political parties, whether directly or indirectly. In the form of a donation made for political reasons, the publication may not be explicitly connected to a political party but yet work in that party's favour

Key Information Regarding Indian Political Parties' Donations

If your enterprise wants to donate to an Indian political party, there are some things you need to understand. Some key points from the Income Tax Act that you should bear in mind are as follows- 

  • Any organisation that is registered in India is free to donate to whichever political party it chooses

  • Any contributions that are made under this section will be eligible for the income tax deduction

  • The party that is receiving the funding must be legitimately registered in accordance with the Representation of the People Act, 1951

  • An electoral trust that has been duly registered with and recognised by the appropriate authorities may receive the donation amount

  • Cash payments are not permitted under Section 80GGB. Cheques, demand draft, electronic transfers, or pay orders to the party's bank account are the only forms of payment that are accepted. This is done to maintain financial accountability and promote political finance openness.

  • The firm is permitted to deduct all contributions given to political parties in full under Section 80GGB. As a result, you have the freedom to give to the political parties of your choice and write those contributions off from your taxes. 

  • You are required to follow all guidelines set forth in the Income Tax Act and keep thorough records of all payments made. If you don't use the recommended technique, the authorities may deny your request for a deduction.

Difference Between Section 80GGB and Section 80GGC

The assessee is the primary distinction between the two categories. The assessee in Section 80GGC is a single taxpayer. On the other hand, the assessee in Section 80GGB is a business or enterprise. The taxpayer must submit the receipt obtained by the political party for deductions under both sections of the Income Tax Act.

Frequently Asked Questions

What is the deduction limit under Section 80GGB of the Income Tax Act of 1961?

There is no upper limit to the amount that is eligible for tax deductions under Section 80GGB of the Income Tax Act, 1961. The entire contribution made as per the eligibility criteria can be claimed under this section.

Can a corporation contribute or donate to several political parties?

Yes, a corporation or an enterprise can make donations or contributions to several political parties. It depends on the company to decide how many political parties they wish to contribute or donate to.

Is foreign funding allowed under Section 80GGB of the Income Tax Act, 1961?

No, foreign funding is not allowed under Section 80GGB of the IT Act, 1961.

Do I need to submit a proof to claim deductions under Section 80GGB?

Yes. You must submit a proof of your contributions or donations made towards a political party or an electoral trust to claim a deduction under Section 80GGB.

What percentage of the annual net profit can a corporation contribute to a political party?

According to Section 80GGB, a company can donate or contribute a maximum of 7.5% of its annual net profit. 

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