Legal

Prohibitions and Restrictions Regarding Political Contributions

calendar16 Apr, 2020
timeReading Time: 4 Minutes
Political Contributions

In India, every political party is seen competing with each other to seek the support of the public for votes. The amount of money spent on the campaign by each political party is undoubtedly huge. The political parties raise funds from many resources, and one such source is the contributions made by the corporate sectors. Such contributions are termed as a Political Contributions.

The topic is all about what political contribution is and what are the prohibition and restrictions regarding Political Contribution.

Political Contributions – An Overview

Political contributions mean contributions given to any political party or any person for political purposes directly or indirectly, whether in cash or kind.

Section 182 of Companies Act, 2013, governs the political contributions and the Prohibitions and restrictions regarding the Political Contributions.

Analysis of Section 182 of the Companies Act 2013

  • Applicability – Applicable to all types of companies.
  • Limit of Contribution – There is no limit on Political Contribution.
  • Approvals Required – Board Resolution is required for Political Contribution.

Exception – Not Allowed to Certain Companies

  • Government Companies and
  • The companies which have been in existence for less than 3 years.

Section 182(1) – The companies other than Government Companies and the companies which have been in existence for less than 3 years can contribute any amount as Political contributions to any political party whether directly or indirectly.

Note: A Board Resolution is also required to be passed before making the political contribution.

Political Contributions – Prohibitions and Restrictions

Before making a political contribution, every company shall comply with the following requirements –

  • Passing of Board Resolution – Before making any political contribution, every company is required to pass a Board resolution. Board Resolution authorizes the making of political contributions at the BOD meeting.
  • Types of Political Contribution – Is covered under the ambit of Section 182(2) – Types of political contributions are-
  • Any amount of expenditure incurred (directly or indirectly) by a company on advertisements in any publication by or on behalf of a political party. It can be in any form, i.e. (a memento, brochure, pamphlet, etc.)
  • Any amount of expenditure incurred on advertisements in any compendium, where such publication is not by or on behalf of but for the advantage of a political party.
  • A donation or subscription or payment caused to be given by a company on its behalf or/its account to a person who as per the company’s knowledge, is performing on such activity which can rationally be regarded as likely to affect public support for a political party.[Section 182 (2) (a)]
  • Disclosure requirement-Section 182(3) – A proper disclosure shall be made by the company in the Profit and loss account of the amount so contributed by the company during the financial year. Additionally, the name of the political party shall also be mentioned in the P&L Accounts.
  • Manner of Payment-Section 182(3A) – For making the political contributions, a company can only use the Banking channels. It cannot be made in cash.

Banking channels means –

  • A cheque is drawn on a bank (Account Payee) or
  • A bank draft (Account Payee)or
  • Use of an E-clearing system through a bank account.
Note:Section 182 (3A) Notwithstanding anything contained in sub-section (1), the contribution under this section shall not be made except by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account:
Provided that a company may contribute through any instrument, issued pursuant to any scheme notified under any law for the time being in force, for contribution to the political parties.
  • Penal Provision for contravening the provisions of the section – In case of contravention of the provisions, the company shall be punishable with fine which may extend to 5 times of the amount contributed by the company as a political contribution and every officer who is in default shall be punishable with imprisonment for a period which may extend to 6 months and with fine which may extend to 5 times of the amount contributed by the company as political contributions.

Tax Benefits to the companies on Political Contributions

All the companies (except a government company and a company that is in existence for less than 3 years) making political contributions can claim a tax deduction under Section 80GGB.

Section 80GGB is meant for providing tax deductions to Indian companies, on making donations to the registered political parties or an electoral trust.

Note:There is no specified limit for making the political contributions, any amount contributed can be claimed for a tax deduction.

Criteria to claim the tax benefits under Section 80GGB

  • To claim the tax benefit under section 80GGB, the political contributions made by the company through banking channels shall be considered. The contribution should never be in cash. This is done to ensure that the money being donated to a political party is maintained in records.
  • The political contributions shall be made to a political party registered under Section 29A of Representation of the People Act, 1951. Donations made to the electoral trust are also eligible for claiming the deduction (Section 80GGB).

Takeaway

A company can make political contributions to the polities’ parties and can claim the tax benefit under section 80GGB. It is required to comply with all the requirements mentioned in Section 182 of the Companies Act, 2013[1]. This section provides the manner of making the political contribution, Disclosure in the Profit and Loss Account. Further, it also provides the penal Provision in case of contravention of section.

Read our article:Section 80GGB and Section 80GGC: Tax Deductions from Donations to Political Parties

Request a Call Back

Are you human? : 7 + 5 =

Easy Payment Options Available No Spam. No Sharing. 100% Confidentiality