🗳️ Corporate Contributions to Politics? Section 80GGB is Your Tax Guide! ✨

Political funding and contributions to political entities by companies are governed by specific tax provisions in India. Section 80GGB of the Income Tax Act, 1961, provides a deduction from the Gross Total Income of Indian companies for contributions made to political parties or electoral trusts. Understanding Section 80GGB is essential for Indian companies that wish to contribute to political funding in a compliant and tax-efficient manner.

What is Section 80GGB? (The Concept)

Section 80GGB provides a deduction from the Gross Total Income (GTI) of an eligible assessee for specific monetary contributions made to political entities.

• Gross Total Income (GTI): The total income computed under all five heads of income (Salaries, House Property, PGBP, Capital Gains, Other Sources), after accounting for eligible loss set-offs.
• Deduction: An amount subtracted from your GTI to arrive at your Total Taxable Income, on which tax is calculated.
• Chapter VI-A: The chapter in the Income Tax Act (Sections 80C to 80U) listing various deductions from Gross Total Income.

The primary purpose is to encourage transparency in political funding by formalizing and providing a tax incentive for contributions made by companies to registered political parties or electoral trusts.

Who Can Claim Section 80GGB Deduction? (Crucial)

The deduction under Section 80GGB is available only to Indian Companies.

• Indian Company: Defined under the Income Tax Act, generally referring to a company formed and registered under the Companies Act, 2013 (or previous Acts), and includes certain other entities treated as domestic companies.
• Assessee: A person (in this case, an Indian company) by whom tax is payable.

Other types of assessees, including Individuals, Hindu Undivided Families (HUFs), Firms, Limited Liability Partnerships (LLPs), and even Foreign Companies, are not eligible for this deduction. (Foreign companies have a separate but similar provision under Section 80GGC).

What Contributions are Eligible Under Section 80GGB?

To be eligible for deduction under Section 80GGB:

• The contribution must be made in money. Contributions made in kind (like providing goods, services, advertising space, etc.) are NOT eligible for deduction under Section 80GGB.
• The monetary contribution must be made during the previous year (PY 2024-25 for AY 2025-26).

To Whom Can Contributions Be Made? (Eligible Donees – Crucial)

The eligible monetary contribution must be made to one of the following entities:

• Any Political Party.
  • Political Party: Means a political party registered under Section 29A of the Representation of the People Act, 1951.
• An Electoral Trust.
  • Electoral Trust: Refers to a company formed for the purposes of Section 13B of the Income Tax Act (regarding voluntary contributions to electoral trusts) and approved by the Central Board of Direct Taxes (CBDT) in accordance with the Electoral Trusts Scheme, 2013. Electoral trusts act as conduits for transparent political funding.

Contributions made to any other entity, even if it is a charitable trust or institution approved under Section 80G, are not eligible for deduction under Section 80GGB.

The Deduction Amount Under Section 80GGB (100%)

• The amount of deduction allowed under Section 80GGB is 100% of the eligible amount contributed during the previous year (PY 2024-25 for AY 2025-26).
• There is no upper monetary limit on the amount of deduction that can be claimed under Section 80GGB, other than the condition that the total deduction under Chapter VI-A cannot exceed the Gross Total Income of the company. The full eligible contribution is deductible.

Payment Method (Crucial – Non-Cash ONLY)

Section 80GGB is very strict about the mode of payment for eligible contributions:

• Any contribution made by an Indian company to a political party or an electoral trust must be made by any mode other than cash.
• This means contributions must be made through instruments like cheque, demand draft, online transfer, or electoral bonds.
• Cash contributions, regardless of the amount, are strictly NOT eligible for deduction under Section 80GGB.

Proof of Contribution is Mandatory

To claim deduction under Section 80GGB, the Indian company must obtain and keep valid proof of the contribution. This would typically be:

• A receipt issued by the political party or electoral trust receiving the contribution.
• The receipt should contain details such as the name and PAN of the political entity/trust, the amount of contribution, the mode of payment, and the date of contribution.

How to Claim Section 80GGB Deduction

1. Verify Company Type: Ensure your company is an Indian company.
2. Check Contribution Eligibility: Verify that the contribution is monetary, made to an eligible political party or electoral trust, and the payment method is strictly non-cash.
3. Calculate Deduction: Calculate the eligible deduction (100% of the eligible contribution).
4. Declare in ITR: Declare the deduction under Section 80GGB in the company’s annual Income Tax Return (typically ITR Form 6).
5. Maintain Proofs: Keep the proofs of contribution safely for records and potential scrutiny by the tax authorities.

Examples

Example 1: Non-Cash Donation to Political Party

ABC Ltd., an Indian company, contributed ₹7,00,000 via cheque to a registered Political Party in PY 2024-25.

• Assessee Type: Indian Company. (Yes)
• Contribution: Monetary, ₹7,00,000. (Yes)
• Donee: Registered Political Party. (Yes)
• Payment Method: Cheque (non-cash). (Yes)
• Deduction: 100% of eligible contribution.
• ABC Ltd.’s Deduction under Section 80GGB = 100% of ₹7,00,000 = ₹7,00,000.

Example 2: Donation to Electoral Trust

XYZ India Pvt Ltd., an Indian company, contributed ₹5,00,000 via online transfer to an approved Electoral Trust in PY 2024-25.

• Assessee Type: Indian Company. (Yes)
• Contribution: Monetary, ₹5,00,000. (Yes)
• Donee: Approved Electoral Trust. (Yes)
• Payment Method: Online Transfer (non-cash). (Yes)
• Deduction: 100% of eligible contribution.
• XYZ India Pvt Ltd.’s Deduction under Section 80GGB = 100% of ₹5,00,000 = ₹5,00,000.

Example 3: Cash Contribution (Not Eligible)

PQR Ltd., an Indian company, contributed ₹25,000 in cash to a registered Political Party in PY 2024-25.

• Assessee Type: Indian Company. (Yes)
• Contribution: Monetary. (Yes)
• Donee: Registered Political Party. (Yes)
• Payment Method: Cash. (No)
• PQR Ltd.’s Deduction under Section 80GGB = ₹0. (The cash payment makes the entire contribution ineligible for deduction).

Example 4: Donation in Kind (Not Eligible)

LMN Ltd., an Indian company, sponsored a rally for a registered Political Party, incurring expenses of ₹1,00,000 directly on organizing the event (donation in kind).

• Assessee Type: Indian Company. (Yes)
• Contribution Type: In Kind. (No)
• LMN Ltd.’s Deduction under Section 80GGB = ₹0. (Donations in kind are not eligible).

Important Points to Remember about Section 80GGB

Conclusion

Section 80GGB plays a significant role in regulating and providing tax incentives for contributions made by Indian companies to political parties and electoral trusts. By allowing a 100% deduction for eligible monetary contributions made through non-cash modes, it promotes transparency in political funding. The strict eligibility criteria for both the assessee (Indian company only) and the donee, along with the mandatory non-cash payment rule, are key features of this section. For accurate tax planning and compliance regarding corporate political funding, ensuring adherence to the requirements of Section 80GGB and consulting a qualified tax professional is strongly recommended.