The Finance Act of 2009 introduced a deduction under Section 80GGC of the Income Tax Act of 1961 with the goal of gaining transparency into the electoral funding mechanism and additionally decreasing corruption to some extent. Section 80GGC offers a deduction for the amount contributed to a political party or an electoral trust.
In the Income Tax Act of 1961, Section 80GGC deductions permits the deduction of the amount contributed to a political party or electoral trust from the total income of the individual. The amount of deduction ranges from 50% to 100% of the total contributed amount. Such deductions offer a significant amount of savings in tax while fostering a powerful political system. Notably, Section 80GGC of the Income Tax Act of 1961 considered any individual contribution to a political party. Further, according to the Income Tax Act 1961, the maximum donation by an individual must be 10% of their gross income to any political organisation of their choice.
Features of Section 80GGC of Income Tax Act 1961
- This section only allows deductions for individuals, which means that only non-corporate assesse or taxpayers are eligible.
- In this section, deduction is not applied to Income tax deducted at source from an individual’s salary. Only individuals who are employed and have no other source of income except salary or wages given by their employer are eligible to claim deductions under the cited section.
- Section 80GGC of the Income Tax Act of 1961 falls under chapter VIA of the deduction, and thus the deduction amount cannot be greater than the individual’s tax liability. This is confirmed by the government, and no individual can claim an unfair advantage as a result of this section.
- In the Finance Act 2009, this section was introduced by the government. The purpose behind the introduction of this section was to promote transparency and ethics in the electoral system and to decrease corruptive activities in it. Thus, the government confirms that the maximum amount of donations made by individuals is made not to avoid taxes, but to accelerate India’s political mechanism. Further, the government also permits deductions to be made for more than one political party and not only one party, so that no bias is created for one political party.
Eligibility for Deduction Under Section 80GGC of Income Tax Act of 1961
In order to get a deduction in this section, it is essential for the individual to fulfil some requirements, which are as follows:
Any individual taxpayer could make a claim for a deduction in the cited section. In this section, no deduction may be claimed by a local authority or an artificial judicial person. Any donation made by an individual in cash or monetary form is not eligible for deduction under Section 80GGC.
Norms of Contribution
In order to qualify for a deduction under Section 80GGC, donations must be made to either an electoral trust or a political party that is registered under Section 29A of the Representation of the People Act, 1951.
A political party is an association or body of individual citizens of India that has obtained registration with the Election Commission and is regarded as an election body.
The electoral trust is a non-profit organisation formed in India to receive voluntary contributions from individuals and distribute them to specific political parties in an orderly manner. The primary reason behind the formation of the electoral trust is to distribute the voluntary contributions received by it to some political parties.
Procedure for Claiming a Deduction
In order to get a deduction under Section 80GGC, the process is very simple and made easy by the government. The deduction in this section is part of the deduction under Chapter VIA of the Income Tax Act of 1961.
The return could be filed by an individual as per the process that is usually needed to follow. In the income tax return, there is a separate place for the specification of the amount paid as a deduction in Section 80GGC. In this, the assessor should mention the amount that is contributed to a political party or electoral trust.
The mode of payment for the individual’s contribution must be checked, and if the individual made cash contribution, this amount is not tax deductible. Donations can thus be made via bank transfer, debit or credit card payment, demand draft, or even online banking.
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In the case of salaried employees, the information regarding contributions made has to be recognised and sent to the employer to include the same in the Form 16 that is provided by the employer to the employee for filing of the tax return. Moreover, the deduction claimed by an individual shall be accepted and recognised by the political party.
The receipt for the donation received must be provided by the political party. Furthermore, when claiming deduction, the individual must provide the PAN and TAN numbers of the political party.
Moreover, a certificate shall be provided by the employer for the deduction claimed by the employee in the context of contributions to the political party. Thus, deductions would be permitted for employees only if the employer provided a certificate stating that the contribution was made on the employee’s behalf. Therefore, it is required of the employee to provide details of his PAN, TAN, donor’s name, and amount contributed to a political party, and some others.
Donations or Contributions under Section 80GGC
Section 80GGC of the Income Tax Act, 1961, allows individuals to claim deductions for donations or contributions made to political parties. It encourages political participation and provides tax benefits to taxpayers who contribute to registered political parties.
Deductions Under Section 80GGC
Under Section 80GGC, taxpayers can claim a deduction for the amount contributed to political parties. The deduction is available to individuals who make donations in any mode other than cash. The entire amount contributed is eligible for deduction without any specified limit.
Exceptions Under Section 80GGC
Section 80GGC does not provide any exceptions or limitations for claiming deductions on contributions to political parties. However, it is important to note that contributions made in cash are not eligible for a deduction under this section.
Also remember that the total deduction cannot surpass the total income of an individual.
Difference Between Section 80GGB and Section 80GGC
Section 80GGB and Section 80GGC both deal with deductions related to political contributions, but they apply to different entities:
Section 80GGB: This section applies to Indian companies or domestic companies that contribute to political parties. Companies can claim deductions for donations made to political parties as a business expense.
Section 80GGC: This section applies to individuals who contribute to political parties. Individuals can claim deductions for the amount contributed to registered political parties.
Who can avail 80GGC Deduction?
Any individual who makes a contribution to a registered political party can avail of the deduction under Section 80GGC. The deduction is available to both salaried individuals and self-employed individuals, as well as to individuals with income from other sources.
Section 80GGC Deduction Limits
Unlike some other sections of the Income Tax Act, there is no specified limit or cap on the deduction available under Section 80GGC. Taxpayers can claim the entire amount contributed to political parties as a deduction.
In What Situations is an Individual Ineligible to Claim a Tax Deduction Under Section 80GGC?
An individual is ineligible to claim a tax deduction under Section 80GGC in the following situations:
Contributions made in cash: Cash contributions are not eligible for a deduction under Section 80GGC. Contributions must be made through non-cash modes, such as cheques, bank transfers, or other electronic means.
Contributions to unrecognized political parties: Deductions under Section 80GGC are available only for contributions made to registered political parties. Contributions made to unrecognized or unregistered political parties are not eligible for the deduction.
Eligibility Criteria of Section 80GGC:
Here are the eligibility parameters to claim a tax deduction under Section 80GGC:
Eligible Taxpayer: Only individual taxpayers can claim a tax deduction under Section 80GGC. This includes salaried individuals, self-employed individuals, and individuals with income from other sources.
Exclusion of Local Authorities: Local authorities, such as municipalities or panchayats, are not eligible to claim a tax deduction under Section 80GGC. This provision is applicable only to individual taxpayers.
Ineligibility of Corporations: Corporations, including companies or any other type of business entity, cannot avail of tax deductions under Section 80GGC. This section is specifically designed for individual taxpayers.
Artificial Juridical Persons Funded by Government: An artificial juridical person, which is a legal entity created by law, and receives partial or complete funding from the government, cannot claim a tax deduction under Section 80GGC. This provision aims to restrict entities that receive government support from claiming deductions.
When Can an Individual Not Claim Tax Deduction Under Section 80GGC?
In the context of Section 80GGC, it’s important to note the following situations where an individual may be ineligible to claim a tax deduction:
Cash Contributions: Individuals who contribute to a political party through cash donations cannot claim a tax deduction under Section 80GGC. The deduction is available only for donations made through demand drafts, cheques, or online payment methods. This requirement aims to promote transparency in electoral funding.
Gifts and Donations in Kind: Donations or contributions made in forms other than monetary payments, such as gifts or donations in kind, are not eligible for tax deduction under Section 80GGC. The deduction is applicable only to monetary donations made to political parties.
Section 80GGC was indeed introduced to encourage individuals to support the political system by providing financial contributions to political parties. By allowing tax deductions for such donations, individuals can lower their tax liability while promoting transparency in electoral funding. It’s essential for individuals to adhere to the specified criteria and modes of payment to claim the tax deduction under Section 80GGC.
Disqualified Contribution
- There are some restrictions stated under Section 80GGC of the Income Tax Act of 1961 with respect to the contribution made to a political party in the below-prescribed situation:
- If the payment mode is cash for a contribution to a political party,
- If a contribution is made in kind to the political party and does not satisfy the condition of Section 80GGC that incorporates gifts whether provided in cash or in kind,
- The amount of the maximum donation that is permitted in this section is the amount of tax payable by the taxpayer. In no case would the deduction be greater than the individual’s tax liability.
- If adequate documents and information are not offered while filing an income tax return and claiming deduction, then the assessing officer or government may refuse to claim deduction in this section.
- For employees, claims would be made only after receiving a certificate from the employer.
Conclusion
Thus, Section 80GGC of Income Tax Act of 1961 provides a deduction for individuals who have made contributions to political parties or electoral trusts. In the cited section, the maximum deduction is 10% of the taxpayer’s gross total income. Section 80GGC provides a benefit to the individual by providing a deduction from the total income that consequently reduces the tax liability. Vakilsearch is one of the biggest professional platforms from which you can get significant information regarding deductions under the Income Tax Act of 1961.
FAQs
Is an Indian company eligible to claim a deduction for donations made to a political party?
No, Indian companies are not eligible to claim a deduction for donations made to a political party under Section 80GGC of the Income Tax Act. This deduction is available only to individual taxpayers.
Can I save more than Rs.30,000 by making a donation to a political party?
Yes, 100% of your contribution can be deducted under Section 80GGC.
Can I claim deductions if I donated to multiple political parties?
Yes, you claim deductions if you have donated to multiple political parties.
Can I claim deductions if I donate to any political party of my choice?
Yes, you can claim deductions if you donate to any political party of your choice.
What is the meaning of electoral trust under Section 80GGC?
Under Section 80GGC, an electoral trust refers to a trust or organization established exclusively for the purpose of receiving donations and distributing them to registered political parties. Electoral trusts are recognized entities for the purpose of making political donations and claiming tax deductions under Section 80GGC.
I work in a government organisation. Can I claim deductions under this section?
Yes, as an individual taxpayer working in a government organization, you can claim deductions under Section 80GGC for donations made to a registered political party. The deduction is available to all individual taxpayers, regardless of their employment status, subject to the conditions specified under the section.
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