An introduction to 80GGB

Section 80GGB of the Income Tax Act, 1961 is meant for providing tax deductions to Indian companies, on making donations to the political parties who are registered or an electoral trust. As there is no specified limit for the same, any amount contributed can be claimed for a tax deduction.

Eligibility Criteria

For claiming a tax deduction on the amount contributed, the company must fulfil the following conditions -

  • To claim for benefits, the amount donated should never be in cash. Every other mode of donation like cheques, e-payment and demand draft are considered for claiming the benefits. This is done to ensure that the money being donated for a political party is maintained in records.
  • The donations which are made should be to a registered political party under Section 29A of Representation of the People Act, 1951. Under Section 80 GGC, donations made to the electoral trust are also eligible for claiming the deduction.
  • Any person can receive the donation, except someone belonging to the local authority or any person who is funded by the government, wholly or partially.

Exceptions to Section 80GGB

  • All Indian companies, which are registered under the Companies Act 2013, are capable of donating to a registered political party or electoral trust and can further make a claim of tax deduction under Section 80GGB, except a government organization and a company which is in existence for the last three years.
  • The political parties or the office bearers are restricted from accepting any foreign contribution, from either foreign individuals or foreign companies.

Can any amount be donated?

The Income Tax Act, 1961 has not fixed any upper limit for the contributions made by the companies. Any amount donated by a valid company is 100% tax-deductible under Section 80GGB (As per amendment under Finance Act,2017). Also, under Section 182 of the Companies Act,2013, it is not compulsory for the companies to disclose the name of the party to which they have donated. Any other expenses like television advertisements, advertising, radio jingles and the latest social media posts which are sponsored by a political party can also be considered as a donation under the Section.

If any company in India is putting an advertisement in any magazine which is run and owned by a political party, then also this amount will be exempted from tax as per Section 80GGB. As long as there is proof of the expenditure, any amount can be donated.


What is the Meaning of Registration of Political Parties under Section 29A?

Registration of political parties comes under the rules and regulations of the provisions of Section 29A of the Representation of the People Act, 1951. A party who seeks registration under this Section with the Commission will have to apply to the commission within 30 days, following its date of formation as per the guidelines prescribed by the Election Commission of India.

This is done by the guidelines conferred by Article 324 of the Commission of India and Section 29A of the Representation of the People Act, 1951. The applicant party is asked to publish the proposed name of the party in two local daily newspapers and two national daily newspapers, on two days in the same newspapers, to check for objections, if any.


Contributions under Section 80GGB

For Section 80GGB, contributions shall include:

  • A donation or payment or subscription, given by a company on its account or its behalf, to a person, who is involved in any activity, which it affects or is likely to affect any public support for a political party or a political purpose.
  • The amount of expenditure, which might be directly or indirectly incurred, by a company, on any advertisement in any publication, be it a brochure, a tract, a souvenir or a pamphlet, which is published on behalf of a political party. The publication may not be directly associated with a political party but can be for the advantage of a political party, in the form of a contribution made for political purposes.
  • A political party is a political party which is registered under Section 29A of the Representation of the People Act, 1951.

Main points to remember:

If your company has decided to contribute to the funds of a certain political party in India, you should understand the basics of Section 80GGB, according to the Income Tax Act 1961. The following are some important points to consider in this regard:

  • Any enterprise or company that is registered in India can make contributions in the form of money, to any political party they wish to, provided it is registered under Section 29A of the Representation of the People Act, 1951.. The donations can be made to multiple parties as well. Whatever be the contributions to the political party/parties, all of them will be subjected to Section 80GGB and will be combined for an income tax deduction.
  • The electoral trust who is receiving the donation amount should also be registered and recognized by the concerned authorities.
  • No cash payments will be allowed under Section 80GGB. The only acceptable form of payments are demand drafts, electronic transfer, and pay order towards the bank accounts of the party or cheques. This is done to ensure fair practices in political funding and also to keep track of the money received and spent.
  • Your company can claim a 100% deduction against the subscription made to the political party under Section 80GGB.

Conclusion

You are free to make donations to political parties of your choice and preference and also claim income tax benefits for the same. The only thing that you should keep in mind is that there should be a record maintained by you and you should comply with all the regulations specified in the Income Tax Act 1961. If the specified set of procedures is not followed, the claim for deduction might be rejected by the Income Tax Department of India.

Frequently Asked Questions

Q- What is Section 80GGB?

Section 80GGB enables companies to claim a deduction for the amount contributed by them to the political parties.


Q- Can companies contribute any amount as political donations?

Under the Income Tax Act of 1961, there is no provision which limits the amount of contributions made by companies. Under the Companies Act, 2013, 7.5% of the average net profits of the past 3 financial years can be only contributed as political donations. However, Finance Act 2017, removes the restriction of amount to be contributed to political parties by the companies.


Q- What is Electoral Trust?

Electoral trust was created for collecting voluntary contributions made by people and companies, further it is distributed to the respective political parties. It is a non-profit organization based in India. The companies which do not intend to disclose the name of their party generally contribute funds through the electoral trust.

Q- How to calculate the amount of tax deduction under section 80G of the income tax?

The categories of donations under Section 80G are divided under two heads. The categories are of maximum limit as well minimum limit. These further gets divided into subcategories. Any donation which exceeds the maximum limit will be subjected for tax deduction upto 50% or 100% depending upon the categories which they belong to.

Q- Is there any prescribed mode of payment of donations for claiming tax deduction?

The prescribed mode of payment for donation under 80GGB should be account payye cheque or any other electronic mode.Any payment made in cash will not be allowed as deduction under this section. However, donations which are in material form such as clothes, books, medicines are not eligible for deduction under 80G.

Q- Is donation to political party deductible?

Donation made to political parties is deductible. For individuals, Section 80GGC of Income Tax act,1961 comes under purview , where any amount donated to political parties or electoral trust can be claimed as deduction and for the companies, Section 80GGB comes under purview , where any donation made by companies to political parties or electoral trust can be claimed as a deduction.

CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.