Section 80 GGC was introduced through the Finance Act 2009, in an attempt to reduce corruption and increase the transparency of the funds flowing into political parties, especially during elections.
According to section 80 GGC, the entire contribution made by an individual (not applicable to local authorities and artificial judicial persons), towards a political party or an electoral trust can be claimed as a deduction for income taxes.
Donations may be made to multiple political parties (need not only to be one party or trust), but the deduction claimed cannot be more than the total taxable income of that individual for the financial year. However, the said political party must have been registered under section 29A of the RPA (Representation of peoples' Act), 1951.
The donations have to be made by way of internet banking, wire transfer, cheque, demand draft, debit, or credit card. Contributions paid in cash are not eligible for deduction under this section.
If the donations are by an Indian company (and not an individual), the deductions will have to be claimed under section 80 GGB.
Important Terms & Definitions
Here are the definitions of some of the important terms:
A political party is an association or a body of individual citizens that are recognized and registered with the Election Commission of India as an election body.
A not-for-profit entity or a section 8 company created in India to receive voluntary contributions from any 'person' and distribute them to the concerned political parties, which need to be registered under section 29A of the RPA, 1951. The purpose of an electoral trust is to bring transparency to the donations made to political parties.
An electoral trust is not entitled to receive contributions from foreign sources, other electoral trusts or government companies or individuals who are non-citizens.
Representation of People’s Act, 1951 (RPA)
RPA is an act that provides for conducting free and fair elections to the Legislative houses of each state and the Houses of Parliament. The act deals with registration of political parties and specifies the qualifications for the membership to these houses, corrupt practices, and other offences connected with the elections and the decisions regarding the doubts and disputes that may arise.
Section 8 Company
Any not-for-profit organization registered as a trust or as a private limited non-profit company incorporated to promote charity, commerce, art, science, religion, or any other beneficial purpose where all the profits and incomes earned will be spent on realizing its objectives.
The government of India must grant a section 8 company a license under Section 8 of the newer Companies Act, 2013 (or Section 25 as per the older Companies Act, 1956).
A section 8 is exempt from regular taxation, stamp duty payments, minimum paid-up capital requirements, book-keeping and auditing requirements.
As per the Income Tax Act, 1961, a person can be any individual, HUF (Hindu undivided family), company, firms, AOP (Association of persons) or BOI (Body of individuals), local authorities, or artificial judicial persons (AJPs).
Key Aspects of Section 80GGC and Contributions to Political Parties
The provisions of section 80GGC are covered under chapter VI-A of the Income-tax Act, 1961.
The political party that receives donations should issue a receipt to the donor that displays the following details: name, address, PAN, TAN of the political party, and the amount donated.
Contributions related to advertisements, television commercials, printing brochures, and pamphlets, radio, and other media campaigns are not eligible for this deduction.
As per section 29B of the RPA 1951, any registered political party can accept voluntary contributions of any amount from an individual or a company. However, foreign companies or companies in India controlled by foreign companies are not eligible for this contribution.
As per section 29C of the RPA, 1951, the details of all donations received more than ₹ 20,000 should be filed with the Election Commission by all political parties mandatorily, using the form 24-A.
Failure to submit form 24-A within the due date will not allow the party to file tax returns, and the party will also not be eligible to claim any tax deduction for the financial year.
There is no upper limit on the amount that can be contributed to political parties.
Starting March 2018, contributions to political parties can be made by way of electoral bonds also.
Eligible Criteria to Claim Deductions under Section 80GGC
- Individuals, firms, HUFs (Hindu undivided families) and AOPs (Association of persons)
- Artificial judicial persons or AJPs (universities, RBI, etc.) and BOIs (Body of Individuals) are not government-funded
Who cannot Claim Deductions under Section 80GGC?
Individuals partly or wholly funded by the government, such as judicial authorities or local authorities (ex. municipalities).
Artificial judicial persons or AJPs (universities, RBI, etc.) and BOIs (Body of individuals)
Electoral bonds are promissory notes that can be bought from a bank and donated to the done in the form of cash, cheque, demand draft, etc. These bonds should be donated to and can be encashed by political parties only.
Electoral bonds are issued in multiples of ₹ 1000, ₹ 10,000, ₹ 1 Lakh and ₹ 1 Crore, which are sold at select branches of the State bank of India (SBI).
These bonds can be purchased by any person who is a citizen of India or who is incorporated or established in India. Once bought, these bonds can be donated to any political party registered under RPA, 1951 and has secured not less than 1% of the total votes polled in the most recent General or Assembly elections.
The electoral bonds were introduced in 2018 and are available for purchase at the beginning of each quarter – January, April, July, and October, for 10 days. In an election year, the bonds will be available for sale for an additional 30 days as specified by the Government of India. The first phase of the electoral bond sale took place between 1st and 10th March 2018.
The validity of electoral bonds is for 15 days. They have to be donated to a political party or an individual of the donor’s choice within 15 days of purchasing the bond.
The Election commission of India allots a verified account for each political party, through which the electoral bonds can be encashed. The bond deposited by a political party would be credited into its account on the same day.
The major advantage of the electoral bonds over other forms of donations is that the bonds will not carry the name. Hence the donor can contribute to single or multiple parties and remain anonymous. There is no obligation for the purchaser of the bond or the receiver to disclose the identity of the donor.
Electoral bonds also increase transparency and reduce the need for huge cash/ black money transactions, especially during election times.
There were some controversies raised regarding the anonymity issue, but the electoral bonds are still in force.
The 13th phase of electoral bond sale was conducted between 13th Jan to 22nd Jan 2020 in 29 authorized branches of the SBI.
Documents Required to Claim Deductions
Receipt issued by the political party bearing the name, address, registration number of the party/trust, PAN, TAN name of the donor, and amount donated (both in number and words).
In case the donation is deducted from the salary of the employee that his contribution is made by the employer, and the donation receipt is in the name of the employer. The employee should request and obtain a certificate mentioning the same from the employee to claim deductions.
Procedure to Claim Deductions
Details of donations made under section 80GGC of ₹20,000 or more have to be submitted before the end of the financial year, which will be incorporated in Form 16. Failing which, one has to mention the details and claim deductions while filing income tax returns.
It must be remembered that donations made in cash and the amount contributed to printing brochures, advertisements, and media campaigning are not eligible for deductions under this section.
Using the receipt given by the political party or the bank, Section 80GGC appears under chapter VI-A deductions of the income tax returns form.
Vide Finance Act, 2013; cash donations made to political parties are not exempt from income tax, effective 1st April 2014.
Comparison of sections that allow deductions on donations/ charitable contributions
|Applicable to||Receiver of Donations/ Contributions||The amount eligible for deduction|
|Section 80G||Individuals Companies, Firms Any other 'person'||Specified relief funds and charity organizations||Deductions are allowed up to 100%, 50%, depending on the organization donated to. Cash donations above ₹ 2000 are not eligible for claiming the deduction.|
|Section 80GGA||All assesses whose source of income is from business and/or profession||Scientific research or rural development||100% of the amount donated is eligible for deduction. However, cash donations above ₹ 10,000 cannot be claimed for deduction.|
|Section 80GGB||Any Indian company or Enterprise||Registered political parties or electoral trusts||100% of the amount donated is eligible for deduction. Donations made in cash or kind cannot be claimed for deduction.|
|Section 80GGC||Individuals Firms HUFs AOPs||Registered political parties or electoral trusts||100% of the amount donated is eligible for deduction. Donations made in cash or kind cannot be claimed for deduction.|
Donations Eligible for 100% Deduction
Some of the important relief funds or charitable organization that allow for 100% tax deduction on donations include those made towards:
- National Defence fund
- Prime minister’s national relief fund
- National children’s fund
- National Foundation for communal harmony
- National blood transfusion council
- National illness assistance fund
- National fund for control of drug abuse
- National sports fund or Indian Olympic Association or any approved body set up for the development of infrastructure for sports or games
- Central welfare funds of the Army, Navy or the Air force
- Relief funds set up by the state governments
- Swachh Bharat Kosh
- Any approved local authority, institution, or government set up for the promotion of family planning
Donations Eligible for 50% Deduction
Contributions towards the following funds/ charities/ entities qualify for a tax deduction of 50% of the amount donated to:
- Jawaharlal Nehru memorial fund
- Indira Gandhi memorial fund
- Rajiv Gandhi foundation
- Prime minister’s drought relief fund
- Any approved local authority or institution set up for utilization of any charitable purpose except family planning
- Repairs of religious institutions (temples, Gurudwara, etc.)
- Any notified authority related to providing housing accommodation requirements or planning/ development of towns and rural areas
- Notified institutions set up for promoting the interest of the minority communities
Donations Eligible for Tax Deduction
Section 80GGA allows for 100% tax deduction on the amounts (other than cash not exceeding ₹ 10,000 or kind) donated to:
- Research association, university, college or any other institution for scientific research
- Research association, university, college or any other institution for research in social science or statistics
- Associations or institutions undertaking programs for the development of the rural areas or those that undertake the training of personnel for implementation of such programs
- Any public sector unit, local authority or any other approved bodies that carry out certain notified schemes
- Afforestation funds, Rural development funds, or National poverty eradication funds
Taxation on Funds received by Political Parties
As per the Section 13A of the ITA 1961, all income of the political parties earned from house property, voluntary contributions from any 'person,' capital gains or income from any other source is subject to 100% tax exemption, provided the political party:
- Is registered under Section 29A of the RPA, 1951
- Maintains records of all contributions received more than ₹ 20,000 and the Treasurer of the party has furnished the list to the Election Commission before the due date for filing the IT returns
- Maintains books of account and get them audited by a chartered accountant
- Has not received any cash donations over ₹ 2,000 from a single entity
The political party which fails to fulfil the above conditions will not be eligible for a tax deduction, as per Section 29C of the RPA, 1951.
However, the political parties are required to file income tax returns using ITR 7, under Section 139(4B) if its income is in the range of the taxable limits. The tax slabs applicable to political parties are the same as that applicable to a resident individual.
Q: What are the sections in the Income-tax Act, under which an individual can claim deductions on donations and charitable contributions?Ans: Sections 80G, 80GGA, and 80 GGC.
While contributions to political parties or electoral trusts can be claimed for deduction under section 80GGC, donations made towards relief funds and charitable institutions and those towards scientific research and rural development can be claimed for tax deductions under sections 80G and 80GGA, respectively.
Ans: Though both sections provide relief from taxation on the amount donated to political parties or electoral trusts, section 80 GGC applies to individual taxpayers. At the same time, tax deductions can be claimed under section 80GGB only by companies.
Ans: No. An electoral bond can only be purchased from the State bank of India (SBI). These bonds can be bought by individuals (singly or jointly with other individuals), HUFs, companies, firms, AOPs, BOIs or any agency, office or branch owned or controlled by the mentioned entities.
Ans: No. But cash donations made to political parties cannot exceed ₹ 2000 (which was ₹ 20,000 before 2018). Any donation over ₹ 2000 has to be made via internet baking, electoral bonds, DD, cheque, wire transfer, debit, or credit cards.
Ans: No. Apart from salary income, donations made from business income, interest income, and rental income are also eligible to be claimed for deductions under section 80GGC.
Ans: Yes. Under the amendment made in the Foreign contribution (regulation) Act, 2010 (FCRA), which came into force from 1st May 2011, overruling the previously existing Foreign contribution (regulation) Act, 1976.
The finance bill 2016 has made a retrospective amendment in the FCRA 2010, changing the definition of a foreign company from a company that has more than half of the nominal value of its share capital, held by entities incorporate in a foreign country or territory’ to a company that has less than half of its share capital held by foreign entities incorporated in a foreign country or territory is no longer deemed as a foreign source' or a foreign company.
Hence, political parties can accept donations from companies in which less than 50% of share capital is held by foreign sources, regardless of where they are incorporated.
Ans: Yes. The maximum donation an individual can make to a political party under the Income-tax Act of 1961 is 10% of his gross earnings for the year. Any amount donated more than ₹ 2,000 in cash or more than 10% of the earnings of the year will not be eligible for a tax deduction.
In the case of section 80GGB, the maximum amount of companies that are allowed to donate to political parties should not exceed 7.5% of the net profits made in the last three years.