India is a vibrant democracy with more than 2000 political parties. A citizen of India can exercise his voting power to support a party of his choice during elections. Apart from this, one can also extend financial support to political parties, and in the process, save tax on the amount donated for this purpose.
Who can you donate to?
- A political party duly enlisted as per Section 29A of Representation of the People Act (1951).
- A non-profit organisation such as an electoral trust formed under Section 8 of the 2013 Companies Act. The trust acts as a channel to receive funds that are passed on to the respective party later.
Who can claim tax deduction
Tax benefits on donations to political parties are available under two sections - namely 80GGB and 80GGC. The former allows deduction on tax for contribution from companies registered in India, while the latter gives this benefit to individuals. The person claiming tax benefit should not be associated with a local authority or be a legal person that receives funds from the government.
Contributions eligible for deduction
Tax benefits on donations to political parties under both 80GGB and 80GGC are not available on cash contributions. This means a cheque, demand draft and electronic transfer should be your preferred mode for donating if you’re looking for a tax deduction. This ensure transparency in funding during the elections.
Both individuals and companies can claim deduction on 100% of the amount donated by them to a political party under Section 80GGC and 80GGB respectively. This helps lower the total taxable income considerably, thus helping them save tax.
Rules for companies to avail tax benefits on donations to political parties
- Contributions upto a maximum of 7.5% of a company’s yearly net profit (calculated as an average of the last 3 years) are allowed.
- The name of the political party and the amount given as donation should be duly disclosed by the company in its profit and loss account book. However, only the amount paid needs to be recorded for a contribution made through electoral bonds.
- An advertisement from a company on any media such as print, broadcast or social which a party in politics owns, would be recognized as a donation as per section 80 GGB. This automatically makes it eligible for tax deduction.
- A company can extend its support to any number of political parties. However, all contributions made are added up to avail tax benefit.
Both companies and individuals are given a provision to contribute to the electoral process of the country. It is important that you comply with the regulations as per Income Tax rules to claim tax benefits for your donation to a political party.