01 Mar Facilitating Political Contributions through Tax Deductions
Introduction:
In a bid to encourage increased participation and financial backing for political parties, provisions for tax exemptions are laid out under Section 80GGB of the Income Tax Act, 1961. This section deals explicitly with donations and contributions made by Indian companies towards political parties or electoral trusts.
Definitions:
- Political Party: Defined as a party registered under section 29A of the Representation of the People Act, 1951. A political party constitutes an organized group of individuals sharing common ideologies or political stances.
- Electoral Trust: An entity established by companies with the primary objective of disbursing contributions received from other companies and individuals to political parties.
Section 80GGB:
Under this section, contributions made by Indian companies to political parties or electoral trusts in the previous year are eligible for deduction.
While no specific limit is outlined, the Companies Act of 2013 stipulates that companies may contribute a maximum of 7.5% of their annual net profit (averaged over three years). Additionally, disclosure of the contribution amount and the name of the political party is mandated in the statement of profit and loss for the fiscal year.
However, deductions are not applicable for payments made in cash.
Interpretation of “Contribute”:
The term ‘contribute’ aligns with its definition under section 182 of the Companies Act, 2013, wherein any donation, subscription, or payment by a company supporting activities likely to influence public support for a political party is deemed as a contribution.
Furthermore, expenses incurred directly or indirectly by a company on advertisements in publications for or on behalf of a political party are also considered contributions.
Section 80GGC:
This section allows deductions for contributions made by individuals to political parties or electoral trusts in the preceding year.
A full 100% deduction is permitted under this section, with no specified limit; however, the contribution must not exceed the total income of the claimant.
Similar to Section 80GGB, deductions are not applicable for cash payments, and contributions in kind are not accepted.
Exceptions:
This deduction is unavailable for:
- Local authorities
- Artificial judicial entities, either partially or wholly funded by the government.
No Comments