What is Section 80GGB?
Deductions under Section 80GGB of the Income Tax Act
Before getting deeper into Section 80GGB, this has to be contrasted with Section 80GGC, which we shall see later. While Section 80GGB deals with political contributions by companies, Section 80GGC of Income Tax Act deals with political contributions by individuals.
Pre-conditions to claim exemption under Section 80GGB
- Exemption under Section 80GGB can be claimed by any registered Indian company towards donations made to a political party or an electoral trust registered in India. The only condition is that the political party must be registered under Section 29A of the Representation of the People Act, 1951.
- All contributions under Section 80GGB must be made via cheque / DD / NEFT / RTGS only; where there is a bank and audit trail. Cash contributions are not eligible for income tax exemption.
- There is no upper limit on the contributions made by companies to political parties under Section 80GGB except that it cannot exceed 7.5% of average net profits for the last 3 years. The company must disclose the name of political party and the amount contributed in its financial statements. However, if the company does not want to disclose the name of the political party, they can contribute via electoral bonds. Even advertisements given by companies on a platform owned by a political party is an eligible contribution under Section 80GGB.
- The company can make contributions to multiple political parties and each of these contributions will be eligible for deductions under Section 80GGB subject to the outer limit of 7.5% of average 3-year net profits. However, public sector enterprises (PSEs) and companies less than 3 years old are not allowed to make contributions under Section 80GGB. Like political parties, even electoral trusts can receive donations; but only if they are duly registered and recognized under the extant laws.
Key point to remember related to 80GGB
Tax exemption under Section 80GGC as distinct from Section 80GGB
Section 80GGC of the Income Tax Act, 1961 also provides tax deduction benefits on donations, but this is restricted to donations made by individuals to political parties. Like in the case of Section 80GGB, there is no upper limit specified under section 80GGC; which means any amount contributed to any one or even multiple political parties can be claimed as a tax deduction. In short, both section 80GGC and 80GGB provide tax deduction benefits on political donations. The difference is that under section 80GGC, individual taxpayers can claim tax benefits while under section 80GGB companies can claim tax benefits on political donations. HUFs are not eligible for Section 80GGC benefits.
What you need to ensure to be eligible for Section 80GGC exemption?
- All donations should only be made through banking channels like cheque / pay order / demand draft / NEFT / RTGS, etc. Donations made in cash are not eligible for claiming exemption nor are third party cheques eligible. The funds must go from the bank account of the assessee claiming the deduction under Section 80GGC.
- Donations can only be made to a registered political party under section 29A of Representation of People Act (RPA), 1951. Alternatively, such donations can also be made to electoral trusts that are registered under the extant laws.
- There is no upper limit specified under section 80GGC; except that it cannot be more than your taxable income and it must be from your known sources of taxable income. Such contributions are 100% tax deductible.