Section 13A of Income Tax Act - Income Tax Exemptions for Political Parties

What does mean term “Political Party?”

A political party registered U/S 29A of the Representation of the People Act, 1951, is referred to as a “political party.”

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What is Section 13A of the Income Tax Act?

Section 13A of Income Tax Act is a special provision for the political parties that provide tax exemption in some cases. According to this section, any income a political party receives from voluntary contributions or any interest, dividend, or rent from its assets is not included in the party's total income for taxation.

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Which are the exemptions available for the political party?

According to Section 13A, any income of a political party from the following sources is exempt from tax:

• Income from house property;
• Income from other sources;
• Capital gains; and
• Income by way of voluntary contributions the political party receives from any individual.

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What are the conditions to avail of exemptions U/S 13A?

A political party that wants to claim tax exemption under Section 13A must meet the following requirements:

• It must be registered under Section 29A of the RPA.
• It must keep books of account and other documents that allow the Assessing Officer to compute its income. It should be noted that a political party does not need to keep all the books of the account specified under Section 44AA. It is enough if it keeps only those books that help the AO determine its income.
• It must record every contribution of more than Rs 20,000 along with the name and address of the contributor unless the contribution is made through an electoral bond.
• It must have its books of account audited by a chartered accountant
• It must not have received any donation of more than Rs 2,000 except by way of account payee cheque/demand draft or ECS or through a bank account or electoral bond
• The treasurer of the political party or any person authorized by the party for this purpose must submit a report of donations received above Rs 20,000 to the Election Commission of India for the financial year on or before the due date for furnishing the return of income for that financial year under Section 29C of RPA.

While Section 13A states that no tax relief will be given for non-submission of such a report, it should be noted that Section 29C of RPA itself denies tax relief to a political party if it fails to submit such a report.

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How does a political party furnish their return of Income?

According to Section 139(4B) of the Income Tax Act, a political party must file a return of income if its income (before claiming exemption) under Section 13A exceeds the basic exemption limit (without considering the exemption under Section 13A). The tax rate applicable for political parties is the same as that for a normal resident individual. The return of income must be filed and signed by the Chief Executive Officer of the political party for the relevant financial year.

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