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Tax Deductions Under Section 80GGB Research Team | Posted On Monday, May 06,2019, 11:45 AM

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Tax Deductions Under Section 80GGB



A tax deduction refers to a deduction made in taxable income of an individual or a company, to reduce tax liability. Section 80GGB is a provision under the Income Tax Act, 1961, which deals with contributions and donations made by corporates and enterprises, towards political parties or an electoral trust.

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Tax Deductions under Section 80GGB

What is Section 80GGB?

Section 80GGB of the income tax act, states that any contribution made by an Indian company to a registered political party or an electoral trust in the previous year, can be claimed as a tax deduction, while filing taxes for a given financial year.

A company can claim tax exemptions for making contributions towards political parties, political advertisements on television or radios or funds donated for social media promotion. Contributions can also be made through electoral trusts.

What is Electoral Trust?

Electoral trust is a non-profit organization based in India, which is created for collecting voluntary contributions made by individuals and companies and distributing the same to the respective political parties.  Companies contributing funds to political parties choose to contribute through the electoral trust, as they do not have to disclose the name of the party.

SEE ALSO: How To Reduce Income Tax In India?

Eligibility Criteria for Claiming Tax Benefits under Section 80GGB:

For claiming tax deductions under Section 80GGB, a company must fulfill certain eligibility criteria as specified by the Act. All Indian companies that are registered under the Companies Act can claim deductions under Section 80GGB, provided they make donations to a registered political party or an electoral trust in India. The tax deduction cannot be claimed by the following entities:

  • A government company.
  • A company which is established only in the last 3 years.

To claim tax benefits under Section 80GGB you should:

  • Not make donations in cash. Contributions made via other methods except for cash like demand draft, net banking, and cheque payments are eligible for the deduction.
  • Make contributions to political parties that are registered under Section 29A (representation of peoples act, 1951).
  • Make donations to an electoral trust

Tax Deduction Limit Under Section 80GGB:

Under this Section, a company or an enterprise can claim tax deductions for the contributions made towards a political party or electoral entity. This section lays down the rules and conditions for donations made by Indian companies to any political party or parties or an electoral trust. The donations cannot be made through cash. Payments made by net banking or via cheque, can be claimed for tax deductions.

The act does not specify any upper limit on the contributions made to political parties. As per the Companies Act 2013, companies can contribute up to 7.5% of their annual net profit. The company making contributions to the political party, does not need party membership to extend grants. However, it is mandatory for the companies to mention the amount contributed and the name of the political party while filing for a tax deduction for the given financial year.

Any expenses incurred on advertisements, commercials on televisions and radios or social media campaigns conducted by political parties are considered to be a contribution and can be claimed for tax benefits. According to this section, if a company provides commercials in a magazine owned by political parties, then this amount enjoys a tax deduction.

SEE ALSO:  What All Comes Under Section 80C Deductions?

How Much Companies Can Contribute to Political Donations?

Under Section 80GGB, only companies can claim tax benefits. Individuals making donations to a registered political party or an electoral trust can claim tax deductions under section 80GGC of the Income Tax Act, 1961.

As there is no specified upper limit on the amount of contributions that can be made, any amount donated to a registered political party can be claimed as a tax deduction. Contributions made by companies under section 80GGB are 100% tax deductible. You can claim a tax deduction on donations made to multiple political parties under Section 80GGC. You don’t need to be a member of the political party to claim tax benefit on your donations.

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