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To encourage the political system in the country, the government has included Section 80GGB in the Income Tax Act, of 1961. This section encourages more political contributions to be made to political parties. Section 80GGB deals with Indian companies making contributions to political parties. This benefit aims to make the electoral system corruption-free and honest. Let us understand in detail this section, its applicability and the conditions the companies have to fulfil to avail of this deduction.

As per section 80GGB of the Income Tax Act,1961, Indian companies can make contributions to political parties in the country or electoral trusts. The prerequisite for availing of this deduction is that the political party must be registered under Section 29A of the Representation of peoples Act, 1951. The electoral trust must be registered as a non-profit organisation under Section 8 of the Companies Act,2013. The electoral trust accepts funding and donations on behalf of the political parties. The electoral trusts after receiving a fund from organisations or companies, reallocate the funds to the respective party.

Eligibility to Claim Deduction under Section 80GGB

  • The companies making contributions to political parties or electoral trusts should be registered under the Companies Act,2013.
  • For companies that are in existence for less than three years, this deduction cannot be claimed. The company must be in business for at least three years
  • Foreign funding is disallowed by the government and no political party is allowed to accept funds from either a foreign company or individual.

Maximum Deduction Allowed under Section 80GGB

The maximum deduction allowed under Section 80GGB for contributions made to political parties or electoral trust is 100 per cent. But, a point to be noted is that the companies can donate only 7.5% of their net profits for the past three consecutive years to avail of a deduction under Section 80GGB.

Conditions to Claim Deduction under Section 80GGB

1. Cash contributions or cash transfers do not qualify as a mode of payment used for making transfers to political parties or electoral trusts. The contributions made should be either through electronic transfers, cheques or demand drafts.

2. There is no upper limit to the contributions that can be made under Section 80GGB. A full amount of deduction can be claimed by the companies with regard to this contribution. But, the companies can make a contribution of only 7.5% of the average profit for the past three consecutive financial years. The companies have to disclose the profits and also the contribution made in the profit and loss statement of the year.

3. Electoral bonds are one way the companies can invest in the political system and in this case, nothing has to be mentioned in the profit and loss statement of the company but the contribution made.

4. According to the latest guidelines from the government, if a company advertises on any platform which is owned by the political party, the advertisement would be considered a contribution made to the political party under Section 80GGB.

5. There is no limit on any amount paid as a contribution to the political party, but it is mandatory for the company to pay via acceptable means and have a documentary record of the transaction.

If the conditions mentioned are not complied with, the claim for deduction can be rejected by competent authorities.

Exceptions to Section 80GGB

Only companies/ enterprises registered under the Companies Act 2013 are eligible to claim a deduction under Section 80GGB

Companies/ enterprises which are in existence for less than three years are not eligible for deduction

Any funding received from foreign companies or individuals is disallowed under Section 80GGB

Any government company making a contribution to a political party is disallowed from availing of a deduction.

Can a Company Contribute to Multiple Parties?

Yes, the company or enterprise can donate or contribute to multiple parties. It is up to the company or organisation to decide which party and how many parties the company wants to contribute money to. The details in financial statements of such donations and contributions is necessary for the companies. The party name and the amount has to be reported mandatorily. If the company wishes not to disclose the name of the party, it can donate via electoral bonds.

Difference between Section 80GGB and 80GGC?

The main difference between the two sections is the assessee. In section 80GGB, the assessee is an individual taxpayer. On the other hand in Section 80GGB, the assessee is a company or an enterprise. Both the sections are similar with respect to documentation and representation required in the financial statements.

For the deduction under both the sections under Income Tax Act,1961, the receipt received by the political party has to be submitted by the assessee.

Key Points To Remember

  • If a company wants to contribute money to a political party, the company or enterprise has to be registered in India.
  • The company or enterprise can make donations to as many political parties as they wish. All the contributions combined will be allowed as deductions under Section 80GGB
  • The political party to which the donation has to be made must be registered under Section 29A of the Representation Act, 1951
  • The electoral trust must be registered under the Companies Act,2013.
  • The mode of payment and contribution to be made should never be cash and the assesses can use various other modes like cheques, demand drafts, and electronic transfers. This step is carried out so that the political system is transparent and the transactions are done without any purpose of corruption.
  • The companies or enterprises can claim a hundred per cent deduction on the amount contributed to the political parties. The companies can make contributions to the number of companies as they wish using a proper payment mode. The documentation needs to be proper in the process and all the compliances should be met under the Income Tax Act,1961.
  • If proper procedures are not followed, the claim can be rejected by assessing authorities.

FAQS

1. What is the difference between 80 and GGC and 80GGB?

The difference is the assesses and otherwise the sections are similar in nature.

2. How much deduction can be claimed under section 80GGB?

A hundred per cent deduction can be claimed for the contribution to political parties under Section 80GGB

3. Is the receipt from the political party necessary for claiming a deduction?

Yes, a receipt from the political party is necessary for claiming a deduction under section 80GGB

4. Which assessee can claim a deduction under Section 80GGB?

The assesses are companies or enterprises registered under the Companies Act, 2013.

5. Is there a requirement for the political party to be registered?

Yes, the political party is to be registered under the Representation Act, 1951.

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