Section 80GGB of Income Tax Act

ON THIS PAGE: What is Section 80GGB? | Rules and Conditions to Claim Section 80GGB Deductions | Key Points Related to Contributions Made to Political Parties in India | Exclusions Under Section 80GGB | FAQs about Section 80GGB

Section 80GGB has been included in the Income Tax (IT) Act, 1961, in order to facilitate the encouragement of the political system in the country. This section deals with the Indian corporations which contribute to the political parties. The aim of this benefit is to make the electoral system free of corruption and dishonesty. Read on to know more about this section, the conditions that the corporations must fulfil to claim a deduction under this section, its applicability, and all of its other aspects.

What is Section 80GGB?

According to Section 80GGB of the Income Tax Act, 1961, the Indian corporations or enterprises can contribute or donate to a registered electoral trust or political party. There is no limitation on the tax deductions with respect to the donation but a corporation can donate a maximum of 7.5% of its total annual net profit. The major objective of the introduction of this section under the Income Tax Act was to encourage the corporations and enterprises to contribute or invest more towards the electoral trusts and political parties. 

It must be noted that only the donations that have been made towards the political parties registered u/s 29A of the Representation of the People Act, 1951 can claim a deduction u/s 80GGB of the Income Tax Act, 1961. Electoral trust is an NPO (Non-profit organisation) which collects contributions and donations from the corporations and distributes them amongst the registered political parties.

Analysis of Section 80GGB of the IT Act

Below mentioned is the detailed analysis of Section 80GGB of the Income Tax Act, 1961:

• Contributions made by: Indian Corporations barring a Government organisation and a corporation that has been existing for less than 3 financial years now. 

• Contributions made to: Electoral trust registered by the competent authorities or the political parties registered u/s 29A of the Representation of the People Act, 1951.

• Contribution Mode: Account payee bank draft or cheque drawn on a bank or electronic clearing system through an account.

• Contribution Limit: No maximum limitations applicable as per Section 80GGB of the IT Act. However, a corporation can contribute a maximum of 7.5% of its annual net profit according to the Companies Act, 2013. 

• Eligible Section 80GGB Deduction Limit: Total contribution made.

Procedural Requirements to Claim Deductions U/S 80GGB of the IT Act

1. The approval of the board of directors in a duly summoned board meeting.

2. Contribution amount is required to be disclosed in the company’s Profit and Loss Account.

3. The political party or the electoral trust is needed to issue the receipt in order to produce a proof of the contributed amount. It must comprise the address, name, TAN, PAN, name of the donor, payment mode, amount donated, and the registration number of the trust or party. 

4. Fill up and submit the Income Tax Return (ITR) form.

Eligibility Criteria to Claim the Deduction U/S 80GGB

If a corporation or an enterprise wishes to make a contribution towards a political party and get it deducted from their taxable income, they must follow the below mentioned rules:

• The payment must be made via demand draft, e-payment mode, or cheque. Cash contributions will not be deducted. 

• Funds must be contributed only to the political parties which have been registered u/s 29A of the Representation of the People Act, 1951.

• Donations can be made to any individual, other than anyone who belongs to the local authority or is partially or completely funded by the government.

• A corporation must donate up to 7.5% of its total annual net profit towards a registered electoral trust or political party.

• A private corporation’s advertisement on a magazine, newspaper, or social media platform which is owned by a registered political party shall be eligible for tax deductions u/s 80GGB.

Please note that if the above mentioned conditions are not followed, the request for deduction can be rejected by the competent authorities at any point of time. 

Exclusions Under Section 80GGB

According to the provisions of Section 80GGB of the Income Tax Act:

• Only corporations or enterprises which have been registered under the Companies Act, 2013 can donate or contribute towards the registered political parties or electoral trusts.

• Corporations or enterprises which have been existing for any span less than 3 years will not be eligible to reap the benefits of Section 80GGB.

• Foreign funding is not allowed, and the political parties are not allowed to accept donations or contributions made by the foreign corporations or individuals.

The money that has been contributed by the corporations towards the political parties or electoral trusts are used up in the larger welfare in the most honest ways possible. It is extremely imperative that the corporations produce enough proof or record to claim the deductions on their donations/contributions. All the rules and regulations passed by the Income Tax Act, 1961 must be followed duly and to the tea to maximise the deduction benefits, else, the requests can get rejected by the competent authorities. These donations can be exempted from tax under section 80GGB of the IT Act, thereby making it easier for the registered electoral trusts as well as the political parties.