Section 80GGB and Section 80GGC of the Income Tax Act 1961 are provisions that offer tax deductions to individuals and corporate entities who donate to political parties. These provisions were introduced to incentivize individuals and businesses to make donations to political parties in India and support their activities.
Section 80GGC of the Income Tax Act provides for deduction on donations to a political party. It states the provisions for political party donations income tax. Simply said, it allows individuals to claim a deduction under section 80GGC for the contributions made towards any political party. Therefore, if you have been saving taxes through HRA, medical allowance, PPF, etc., section 80GGC deduction can also be a great way to save even more taxes.
Section 80GGB And Section 80GGC: Legal Aspect of Tax Deductions from Donations to Political Parties
- Section 80GGB allows individuals and corporates to claim a tax deduction of up to 100% of the amount donated to political parties registered under the Representation of the People Act, 1951 o,r the Representation of the People Act, 1950. Donations made to such parties are treated as 100% tax-deductible, subject to a maximum deduction of 75% of the donor’s gross income for the financial year. This 80GB deduction is
subject to certain conditions, such as the donation being made by cash, cheque, or electronic transfer. Additionally, the donor must ensure that the donation amount does not exceed their gross income for the financial year. - Section 80GGC provides a tax deduction of up to 50% of the amount donated for the financial year, with a maximum deduction of Rs20,000 for individuals and Rs50,000 for corporates. This section applies to donations to political parties entered under the Indian Companies Act, of 1956, and the Indian Partnership Act, of 1932. The 80GGC deduction is subject to the same conditions as Section 80GGB, and donors must ensure that the amount donated does not exceed their gross income for the financial year.
It is essential to note that tax deductions under both these sections are subject to certain conditions and limitations. For example, the combined amount of deductions under Section 80GGB and Section 80GGC cannot exceed 100% of the amount donated, and the total amount of deductions cannot exceed 20% of the donor’s gross income for the financial year. Additionally, the deductions under these sections are subject to the limitations and conditions set out in the Income Tax Act 1961 and the Rules thereunder. It is endorsed that donors consult with a tax advisor or professional before making donations to ensure that they claim the deductions as per law.
What are the Tax Deductions from Donations to Political Parties?
For many individuals and businesses, political parties are a cause close to their hearts. Donating to these entities can provide significant financial support to their operations and help further their political objectives. However, political donations can also be considered tax-deductible contributions in some cases, reducing the donor’s taxable income. Some donors may be entitled to a tax deduction for their contributions to political parties, which can benefit them.
In India, political parties are subject to the legal provisions of the Income Tax Act of 1961. Section 10A of this act allows individuals and corporate entities to claim tax deductions for donations to political parties. Donations to a registered political party are considered 100% tax deductible provided the donor does not exceed 20% of their adjusted gross income (AGI) in donations in a particular financial year. For example, if an individual’s AGI is Rs 5,00,000, their maximum permissible political donation would be Rs1,00,000 (20% of their AGI). Any donation over this limit cannot be claimed as a tax deduction.
Additionally, political donations are exempt from gift tax in India. Individuals and corporate entities can make political donations without any gift tax liability. Notably, the amount of tax deduction allowed under Section 10A depends on the donor’s income bracket. For individuals whose income is below Rs5,00,000, the maximum deduction allowed under Section 10A is 75% of their gross income. For individuals with an income of Rs5,00,000 to Rs 10,00,000, the maximum deduction allowed is 50% of their gross income. For persons with an income of more than Rs 10,00,000, the maximum deduction is 20% of their gross income.
Thus, donating to political parties is a noble and patriotic act and can also provide tax benefits to donors. However, it’s essential to consult with a tax advisor to understand the full extent of the tax deduction benefits available and to ensure that your donations are correctly claimed on your income tax return
Process of Tax Deductions from Donations to Political Parties
- Donation: The first step is to donate to a political party that meets the criteria under Section 80GGB or Section 80GGC of the Income Tax Act of 1961. Donors are required to make donations by cash, cheque, or electronic transfer.
- Get a Certificate: The political party that receives the donation must issue a certificate acknowledging the donation and stating that it qualifies for tax deductions under Section 80GGB or Section 80GGC.
- File Income Tax Return: Donors who have made political donations can claim tax deductions by filling in the relevant sections of their income tax returns. They must ensure that they have obtained a certificate from the political party and that the donation amount does not exceed the maximum limit set out in the Income Tax Act1961.
- Wait for Processing: Once the donor’s income tax return has been filed, it will be processed by the tax department. The donor will receive a refund of the tax deducted from the political donation amounts if they are entitled to one.
Documents are needed for the Tax Deductions from Donations to Political Parties
- Tax return form (ITR): The donor must file their income tax return (ITR) to claim tax deductions on donations to political parties.
- Tax deduction certificate: Donors must obtain a certificate from the political party acknowledging the donation and stating that it qualifies for tax deductions under Section 80GGB or Section 80GGC. This certificate must include the donor’s name, address, PAN number, and the donation amount, along with the political party’s name, address, and PAN number.
- Donation receipt: Donors should also get a donation receipt from the political party, proving that the donation was made to an eligible entity.
- Bank statement: Donors must also provide bank account statements to support their claims of donations to political parties.
- PAN card: The donor must also submit their PAN card as identity proof to the tax department.
- Identity proof: The donor must also provide identity proof, like a driving license, passport, or Aadhaar card, to the tax department.
Advantages
- Encourages Political Participation: The tax deductions for donations to political parties encourage individuals and corporates to support the political process in India. It leads to enhanced political participation, which ultimately serves to strengthen democracy.
- Increased Transparency: Political parties must disclose their income, expenditures, and details of donations received under the Representation of the People Act of 1951 and the Income Tax Act. It increases transparency in political funding and promotes accountability.
- Tax Relief: The tax deductions allow donors to reduce their tax liabilities, which can be significant for individuals and corporations that make large donations.
Difference Between Section 80GGB and Section 80GGC
Under Section 80GGB of the Indian Income Tax Act, any Indian company making contributions to political parties can claim a deduction for the donated amount.
Similarly, under Section 80GGC, individual taxpayers can claim a deduction for the amount donated to political parties.
FAQs
Can companies make political contributions?
Yes, corporates and companies can make political contributions under Section 80GGB of the Income Tax Act, 1961. But they cannot claim tax benefits on political contributions under this section.
Can I claim deductions if I donated to multiple political parties?
Yes. This section does not provide a limit on the number of political parties towards which you can contribute. Thus, you can claim a 100% deduction for contributions made to multiple political parties.
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