Section 80GGB of the Income Tax Act 1961 deals with a deduction for donations and contributions made directly or indirectly by an Indian Company to political parties or electoral trusts.
Tax Deductions under Section 80 GGB
An Indian company can claim deduction under section 80GGB of the Income-tax Act,1961 in case of donation made to a registered political party or an electoral trust. It is important to note that any foreign company is not allowed to donate any amount to a political party in India. Political parties receiving the donation must be registered under Section 29A of the Representation of the People Act, 1951. An electoral trust is a non-profit company created under Section 8 of the Companies Act, 2013. An electoral trust can receive voluntary contributions from other companies and then reallocate it to the duly registered political parties.
Rules to claim deduction under Section 80GGB
- Cash paid to a political party as a contribution is not allowed as a deduction under Section 80 GGB. Therefore, It is important to make donations through other modes of payments such as Cheque, Demand Draft, or Electronic Transfer.
- There is no maximum limit on the contributions made to political parties under Section 80 GGB. However, It is necessary to disclose the details regarding the amount donated and the name of the political party in the Profit and Loss account.
- If the amount is donated by the company through electoral bonds, then it is not necessary to mention the name of the party in the Profit and Loss Account, only the amount paid has to be mentioned.
- Any advertisement from a company on a platform owned by a Political Party would be considered as a contribution under Section 80 GGB. It is therefore eligible for an income tax deduction. This includes social media, magazines, newspapers, etc.
- There are certain exceptions to the contributions made under Section 80 GGB:
- A Government company
- A company that has an age of three years or less.
Key Points Related to Contributions Made to Political Parties in India
- Any company registered in India is allowed to make contributions to any political party.
- A company is allowed to make contributions to any number of political parties that it wishes to support. All contributions made under Sec 80GGB will be combined for the income tax deduction.
- The political party that is receiving the donation must be duly registered under Section 29A of the Representation of People Act, 1951.
- The electoral trust receiving the donation amount must be duly registered and recognized by the competent authorities.
- Under no circumstances are cash payments allowed under Section 80GGB. The only acceptable modes of payment include cheques, demand drafts, electronic transfer, or a pay order towards the bank account of the political party. This is to ensure transparency in political funding and to keep track of the money received and spent.
- The Company can claim a 100% deduction against the amount donated to a political party under section 80GGB.