Section 80GGB of the Income Tax Act 1961 deals with donations and contributions made by Indian companies towards registered political parties or an electoral trust. The introduction of Section 80GGB has been done in order to increase the contributions towards political parties or an electoral trust.
The political parties accepting the donations must be enrolled under Section 29A of the Representation of the People Act, 1951. An electoral trust is a non-profit organization made under Section 8 of the Companies Act, 2013. An electoral trust can get willful contributions from different organizations and afterward reallocate it to the registered political parties.
Eligibility criteria for claiming tax benefits under Section 80GGB
All Indian organizations enlisted under the Companies Act, 2013 can make donations to a registered political party or an electoral trust in order to claim tax deduction under Section 80GGB. Given below is a list of the Indian companies which are not eligible for making donations:
- A public sector enterprise
- An organization that has an age of 3 years or less than that.
Rules and Conditions to claim tax deduction under Section 80GGB
Given below is a set of rules and conditions in order to claim tax deduction under Section 80GB:
- The donations given to the registered political parties or an electoral trust should be made through Cheque, Demand Draft, or Electronic transfer.
- As per the Companies Act 2013, companies can donate 7.5% of their annual net profit (average three years). Along with this, it is necessary for the companies to mention the amount contributed and as well as the name of the political party to whom the amount has been donated in its profit and loss account for said financial year.
- If in case, the amount has been donated through electoral bonds, then the companies only have to mention the amount contributed to its profit and loss accounts.
- There is no specific limit decided for donations, but it is necessary for the companies to pay the amount through an acceptable mode as mentioned above. Along with this, the companies are also advised to keep a record of the same.
- According to the latest guidelines, if a platform owned by a political party includes an advertisement created by a particular company would also be considered as a contribution under Section 80GGB.
Points to remember
- All donations made under Section 80GGB will be combined for the Income Tax deduction of the company. Companies can make contributions to any number of political parties that it wishes to wishes to support.
- The electoral trust must be registered and recognized under competent authorities.
- The company can claim a 100% tax deduction against the amount donated to a political party.
Companies can claim a tax deduction by providing donations to political parties. It is necessary to keep a record of the contribution being made and should be done according to the regulations specified in the Income Tax Act, 1961.