[Opinion] Analysis of Provisions of Section 80GGC Regarding Donations To Political Parties

CA Kaushik D. Shah – [2024] 169 taxmann.com 715 (Article)

1. Introduction

The Income Tax Department has sent notices to a number of taxpayers who made donations to political parties that are registered, but not recognised by the Election Commission. The notices sent to individuals and corporates are for donations made in FY21 and FY22, to find out whether such payments to lesser-known political parties were used to evade tax and launder money.

Below is an analysis of Section 80GGC, which governs donations to political parties.

2. What is Section 80GGC?

Section 80GGC of the Income Tax Act allows individuals to claim a tax deduction on contributions made to political parties or electoral trusts in the previous year. However, no deduction is applicable if the individual makes a donation in cash.

While calculating an assessee’s total income, an individual can claim any amount contributed to a political party or an electoral trust during the financial year. However, local authorities and artificial juridical persons, wholly or partly funded by the Government, are not eligible.

3. Deduction under Section 80GGC

Individuals who contribute to any political party or electoral trust may avail tax deduction up to 100% of their contribution to that party. As a result, the individual’s total taxable income is reduced in proportion to the contribution made to the relevant party. In other words, a taxpayer or assessee’s entire contribution to a legitimate political party will be deducted from his or her taxable income.

4. How To Claim Deduction Under 80GGC?

To claim deductions under this section, donations to political parties should be made only through banking portals. A taxpayer can invest through online internet banking, cheques, debit cards, credit cards, demand drafts, and so on.

5. Documents Required

You need to retain documents supporting your donations. You must retain the receipt that proves the donation. The political party will issue such a receipt. Moreover, the receipt will mention information such as the donor’s name, address of the donor, PAN Number of the donor, registration number of the trust/party, mode of payment, and amount in words and numbers. You need not attach the receipt with the Income Tax Return while filing the form. However, you must retain the receipt for any further assessments or orders.

Click Here To Read The Full Article