Section 80GGB: Deductions on Donation to Political Parties

Not many people know that there is a specific section under the IT Act, Section 80GGB, which makes political contributions by companies/enterprises eligible for a tax deduction.Here are some of the most important things you should know about Section 80GGB-

If a company/enterprise wants to contribute to a political party and deduct the same from their taxable income, they are required to-

• Make the payment through cheque, demand draft, or any other electronic mode of payment. Contributions in cash are not eligible for this deduction.
• Contribute funds only to political parties that are registered under Section 29A of the Representation of the People Act, 1951.
• Make donations to any individual, except someone who is part of the local authority or is funded wholly or partially by the government.

As per the provisions of Section 80GGB-

• Only companies/enterprises that are registered under the Companies Act of 2013 are eligible for contributing to a political party.
• Companies/enterprises that have been in existence for less than three years are not eligible to claim deduction under Section 80GGB
• Foreign funding is strictly prohibited, and no political party is allowed to accept contributions made by foreign companies or individuals

As per the IT Act, there is no maximum limit for claiming tax deduction under Section 80GGB. 100% of the amount donated to a political party is eligible for a tax deduction.But note that a company or enterprise can only donate up to 7.5% of its net profits in the last three years to a political party and claim deductions under this section.

No, it is up to the company whether it wants to donate funds to a single political party or multiple parties. But once the donation is made, the companies then have to report the same in their financial statements along with the name of the party to which the funds have been donated.
In case if the company doesn’t want to disclose the name of the party, it can donate via electoral bonds.

Section 80GGB of the IT Act makes it easier for companies to contribute to political parties and also claim a tax deduction on the donated amount.
However, the company should comply with all the provisions of the IT Act and maintain accurate records of such donations to avoid getting their tax deduction claim rejected.Ready to make the most of your money? Start your tax planning journey now!

The information contained herein is generic in nature and is meant for educational purposes only. Nothing here is to be construed as an investment or financial or taxation advice nor to be considered as an invitation or solicitation or advertisement for any financial product. Readers are advised to exercise discretion and should seek independent professional advice prior to making any investment decision in relation to any financial product. Aditya Birla Capital Group is not liable for any decision arising out of the use of this information.