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Section 80GGC of the Income Tax Act


Section 80GGC of the Income Tax Act

Section 80GGC of the Income Tax Act provides a deduction for taxpayers who have donated to political parties. The quantum of contribution can be extended up to a maximum of 10% of the Gross Total Income. The provision benefits the taxpayers as the contributions can be claimed as a deduction when filing Income Tax returns. Also, the taxpayers availing themselves of these deductions are accorded tax-saving opportunities, including such deductions as House Rent Allowance (HRA), Medical Allowance, etc. This article is an overview of Section 80CGC.

Section 80GGC

This section was introduced as part of the Finance Act of 2009. It was formed to instil a culture of transparency into electoral funding and avoid corruption. Deductions under this section fall under the purview of Chapter VIA Deductions, thereby conveying that the deduction would not exceed the total taxable income of the taxpayers.

Who Qualifies for the Provision?

Deduction under this section can only be availed by taxpayers with taxable income for the relevant financial year. The list of eligible taxpayers includes individuals and artificial judicial persons (excluding corporate taxpayers). The section does not apply to:

  • Local authorities
  • Artificial judicial persons who are recipients of any funds from the government
  • Companies

The deductions under this section cannot be applied on Tax Deducted at Source (TDS) on an individual’s salary. Section 80GGC is only extended to employees who are recipients of salary but not any other income from other businesses. The deductions can be claimed by the taxpayers at the time of filing of returns.

Norms of Contribution

Section 80GGC endorses a taxpayer to make donations to any of the following entities:

  • Electoral trust: An Electoral Trust is a Section 8 Company or a non-profit entity created in India for the orderly receipt of voluntary contributions from any person and for distributing the same to the respective political parties. The sole objective of an electoral trust is to distribute the contributions received by it to a political party.
  • Political Party: “Political party” means an association or a body of individual citizens of India registered with the Election Commission as a political party. Any political party registered under Section 29A of the Representation of the People Act, 1951.

Quantum of Deduction Permitted

Donations to the following entities would qualify for a complete tax deduction:

  • Electoral trust.
  • Political parties registered under Section 29A of the Representation of the People Act, 1951.

If the taxpayer claims for the same, the taxable amount of the concerned taxpayer is lowered in proportion to the contribution made.

Procedure for Availing Deductions

The taxpayers desirous of claiming deductions under this provision may mention the amount of their contribution in the relevant income-tax return form. These particulars must be mentioned in the space provided for Section 80GGC. The section finds its place in ‘Chapter VI-A Deductions’ in the Income Tax Return Form. The taxpayers must ensure that the donations are transferred to the political parties through legitimate banking portals such as Internet banking, cheques, debit cards, credit cards, demand drafts or other pertinent means to claim deductions. Transfer of funds using cryptocurrency such as Bitcoin cannot be used to claim a deduction under this section.

Disqualified Remittances

Section 80GGC of the Income Tax Act prohibits deductions for contributions made to political parties under the following circumstances:

  • The donations are remitted using cash.
  • Donations or contributions to political parties are made in kind and do not fall under the purview of Section 80GGC, which incorporates gifts whether made in cash or in kind.