Every individual or Company support a political party because of the ideologies or to express solidarity with the party. Apart from this, the primary reason for supporting a political party is to avail tax deductions. Section 80GGB and Section 80GGC provide benefit to the taxpayer in tax deductions. Political contributions are generally made to cover the expenses of the political party mainly for election campaigns. An individual taxpayer or companies can make donations to the political parties as prescribed in Section 80GGB and 80GGC in any recorded mode other than cash. The proof of expenditure must be maintained for the confirmation of such procedures. Hence individuals or companies who opt for tax deductions by supporting political parties have the advantage of saving a good portion of the tax under Section 80GGB and Section 80GGC.
What is Section 80GGB and 80GGC?
A provision of exemption in tax payments is prescribed under Section 80GGB and 80GGC to encourage the making of donations to political parties. Section 80GGB and 80GGC of the Income-tax Act, 1961 mainly deals with donations and contributions made by an individual taxpayer and Indian Companies towards political parties. The cashless amount that is donated to any political party registered under Section 29A is eligible for 100% deductions.
- Any Indian Company or enterprise can donate to a political party/parties or an electoral Trust and claim tax deduction according to section 80GGB of the Income Tax Act, 1961.
- If the party is registered under Section 29A of the People Act, 1951, the donations can be made through any recorded mode other than cash.
- The expenses made in an advertisement, Television Commercials, Radio jingles, and Social media is considered as a contribution under this section.
- If any company publicises any political party in its magazine, the amount will be exempted from tax.
- The Company must have proof of donations made to the political parties.
- Any individual can make donations to political parties subject to certain conditions according to Section 80GGC of the Income-tax Act, 1961.
- There is no upper limit to make donations.
- The amount deducted can range from 50% to 100% of the amount contributed.
- As prescribed in the Act, an individual can donate up to 10% of his gross earning to any political organisation.
- The deductions in Section 80GCC can be claimed with other deductions such as Medical Allowance, House Rent Allowance, etc.
Eligibility criteria for Section 80GGB and 80GGC
Below table mentions the eligibility criteria of Section 80GGB and 80GGC:
|Section 80GGB||Section 80GGC|
|1.||Indian companies that are registered under the Companies Act, 2013. The following entities cannot claim a tax deduction: A Government CompanyA company which is established only in the last three years.||Only individual taxpayers can claim tax benefits. Section 80GGC specifies the following groups to make a political contribution- an individual, Hindu Undivided Family (HUF), firm, an Association of Persons (AOP) or Body of Individuals(BOI) and Artificial Juridical Person(AJP). The latter two candidates mentioned in the list above should not be funded by the government.|
|2.||Donations should not be made in cash, to claim tax benefits.||Donations should not be made in cash, to claim tax benefits.|
|3.||Donations must be made to a political party registered under section 29A of Representation of People Act (RPA), 1951.||Donations must be made to a political party registered under section 29A of Representation of People Act (RPA), 1951.|
|4.||Donations made to electoral trust are also eligible for claiming tax deduction under section 80GGC.||Donations made to electoral trust are also eligible for claiming tax deduction under section 80GGB.|
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Procedure to avail the deductions under Section 80GGB and 80GGC
To avail, tax deductions prescribed in Section 80GGB and 80GGC is easy and convenient.
The procedure to receive tax deductions for Indian Companies and individual taxpayers are explained in detail:
- No Cash contributions are allowed under Section 80GGB.
- The modes of payment for making contributions to political parties must be through cheque, Demand Draft or Electronic Transfer.
- There is no maximum limit on the contributions made to the political parties.
- But according to the Companies Act 2013, companies can contribute up to 7.5% of their annual net profit (three years average).
- A company must disclose the amount contributed, and also the name of the political party in its Profit and Loss account for the said financial year.
- If the amount is contributed via electoral bonds, then mentioning the name of the party in the Profit and Loss Account of the Company is not compulsory. Only the amount paid must be mentioned.
- Advertisement from a company on a platform owned by a Political Party is considered as a contribution under Section 80GGB. Hence, it is eligible for an income tax deduction. These include magazines, social media and newspapers.
- There is no limit on the amount to be contributed to a political party. Still, a company must pay the amount via an acceptable route and keep the documentary record of the same.
- Some exceptions are mentioned to the contributions made under Section 80GGB:
- A Public Sector enterprise.
- A company having an age of 3 years or less.
- The assessee can file their tax returns by mentioning the contributed amount in the Income Tax Return form.
- Section 80GGC appears under Chapter VI-A of the Income Tax Return Form.
- The deductions can be availed by donating in any cashless form, including online banking, debit cards, cheques, credit cards, demand drafts, etc..
- The details of the donations made must be submitted to the employer for incorporating it in Form 16. Otherwise, the details must be mentioned in the specified column while submission of tax returns.
- The political party shall issue a receipt containing the name and address of the registered political party, amount donated, along with the PAN and TAN (Tax Deduction Account Number) of the party.
- When the political parties submit their income tax return, a report is made containing the details of the donors who contribute Rs. 20,000. This report must be sent to the election commission of India yearly.
- Money spent on advertisements, the printing of brochures and pamphlet shall be excluded from the amount meant for a tax deduction.
- Under Chapter VI A of the Income Tax Act, tax deductions for the donations in political parties are meant for income from salary and rent.
- This donation amount is deducted directly from the salary, and the donation receipt is made in the name of the employer.
Difference between Section 80GGB and 80GGC
Section 80GGB and Section 80GGC are very similar in their actions in enforcing the tax deduction benefits.
However, the fundamental difference is to distinguish between the types of donors:
|Section 80GGB||Section 80GGC|
|Companies are eligible to claim tax benefits||Only individual taxpayers can claim the tax benefits.|
Everyone is free to make donations to political parties of their choice and preference and also to claim income tax benefits for the same. The only thing to be noted is that the record should be maintained appropriately. The Company or individual must comply with all the regulations specified in the Income Tax Act, 1961. In case the procedure is not followed correctly, the Income Tax Department can reject the claim made for the deduction. You can contact Corpbiz and avail our guidance regarding the deductions to be received in Income Tax filing.
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