Section 80GGB: Tax Deductions for Indian Companies on Political Donations.

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 29A 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 for deduction under section 80GGB. Here are some exceptions:

A government enterprise
A business that has only been operating for 3 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 impact public support for a political party or political objective.
This includes amounts spent by a business on advertisements in publications—such as brochures, tracts, mementos, or pamphlets—produced directly or indirectly on behalf of political parties. Even if the publication isn't explicitly connected to a political party, donations towards it may still indirectly support that party's interests.

Key Information Regarding Indian Political Parties' Donations

If your enterprise wants to donate to an Indian political party, here are some key points from the Income Tax Act to keep in mind:

Any organisation registered in India is free to donate to any political party of its choice.
Any contributions made are eligible for deduction under section 80GGB.
The party receiving the funding must be legitimately registered in accordance with the Representation of the People Act, 1951.
An electoral trust duly registered and recognised by appropriate authorities may also receive donations.
Cash payments are not permitted under section 80GGB. Cheques, demand drafts, electronic transfers, or pay orders to the party's bank account are the accepted forms of payment, ensuring financial accountability and transparency.
The firm is permitted to deduct all contributions given to political parties in full under section 80GGB of the Income Tax Act. Thus, businesses have the freedom to contribute to political parties of their choice and write these contributions off from taxes.
You must adhere to guidelines set forth in the Income Tax Act and keep thorough records of all payments made. Failure to use recommended methods may lead authorities to deny your deduction claim.

Difference Between Section 80GGB and Section 80GGC

The assessee is the primary distinction between the two categories. Section 80GGC applies to individual taxpayers, while section 80GGB applies to businesses or enterprises. The taxpayer must submit a receipt from the political party to claim deductions under both sections of the Income Tax Act.

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

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

Can a corporation contribute or donate to several political parties?

Yes, a corporation or enterprise can donate to multiple political parties. It is up to the company to decide the number of political parties to which it wishes to contribute.

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

No, foreign funding is not permitted under section 80GGB of the Income Tax Act, 1961.

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

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

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

Under Section 182 of the Companies Act, 2013, a company can contribute up to 7.5% of its average net profit from the previous three financial years to political parties. Section 80GGB itself does not prescribe a specific limit; this restriction is outlined by the Companies Act, 2013.