Deduction in respect of contribution given by Indian companies to political parties under Section 80GGB of Income Tax Act, 1961

By | June 19, 2014

Section 80GGB allows deduction to corporate organizations (Indian Companies) for any amount contributed to political parties. They can claim deduction ranging from 50 percent to 100 percent of the amount. There is also restriction on the deduction as per Section 182 of the Companies Act, 2013 (section 293A of the Companies Act, 1956).
Section 182 of the Companies Act, 2013 (Section 293A of the Companies Act, 1956) deals with the prohibition and restriction regarding political contribution. A non-Government company which has been in existence for not less than three years may contribute any amount or amounts directly or indirectly to any political purpose to any person provided that the aggregate of the amounts which may be so contributed by a company in any financial year shall not exceed 7.5% ( Section 293A of Companies Act 1956 was 5%) of its average net profits during the three immediately preceding financial years. For the purposes of this section “average net profit” shall be calculated in accordance with the provisions of section 198 of the Companies Act 2013 (For Companies Act, 1956 determined in accordance with the provisions of Section 349 and 350 during the three immediately preceding financial years).

Penalty for contravention under Companies Act 2013

Section 182(4) : If a company makes any contribution in contravention of the provisions of this section, the company shall be punishable with fine which may extend to five times the amount so contributed and every officer of the company who is in default shall be punishable with imprisonment for a term which may extend to six months and with fine which may extend to five times the amount so contributed

Meaning of Political Party for Income tax Act in India OR PP in India:  For the purposes of this section, “political party” means a political party registered under section 29A of the Representation of the People Act, 1951

Reference: – As Per Section 80GGB of the Income Tax Act 1961

Deduction in respect of contributions given by companies to political parties.

  1.  In computing the total income of an assessee, being an Indian company, there shall be deducted any sum contributed by it, in the previous year to any political party or an electoral trust.

The following proviso shall be inserted before the Explanation to section 80GGB by the Finance Act, 2013, w.e.f. 1-4-2014:

Provided that no deduction shall be allowed under this section in respect of any sum contributed by way of cash.

Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this section, the word “contribute”, with its grammatical variation, has the meaning assigned to it under section 293A of the Companies Act, 1956 (1 of 1956).

29A. Registration with the Election Commission of associations and bodies as political parties. — (1) Any association or body of individual citizens of India calling itself a political party and intending to avail itself of the provisions of this Part shall make an application to the Election Commission for its registration as a political party for the purposes of this Act.
(2) Every such application shall be made, —
(a) if the association or body is in existence at the commencement of the Representation of the People (Amendment) Act, 1988 (1 of 1989), within sixty days next following such commencement;

(3) Every application under sub-section (1) shall be signed by the chief executive officer of the association or body (whether such chief executive officer is known as Secretary or by any other designation) and presented to the Secretary to the Commission or sent to such Secretary by registered post.

(4) Every such application shall contain the following particulars, namely:—
(a) the name of the association or body;
(b) the State in which its head office is situate;
(c) the address to which letters and other communications meant for it should be sent;
(d) the names of its president, secretary, treasurer and other office-bearers;
(e) the numerical strength of its members, and if there are categories of its members, the numerical strength in each category;
(f) whether it has any local units; if so, at what levels;
(g) whether it is represented by any member or members in either House of Parliament or of any State Legislature; if so, the number of such member or members.

(5) The application under sub-section (1) shall be accompanied by a copy of the memorandum or rules and regulations of the association or body, by whatever name called, and such memorandum or rules and regulations shall contain a specific provision that the association or body shall bear true faith and allegiance to the Constitution of India as by law established, and to the principles of socialism, secularism and democracy, and would uphold the sovereignty, unity and integrity of India.

(6) The Commission may call for such other particulars as it may deem fit from the association or body.

(7) After considering all the particulars as aforesaid in its possession and any other necessary and relevant factors and after giving the representatives of the association or body reasonable opportunity of being heard, the Commission shall decide either to register the association or body as a political party for the purposes of this Part, or not so to register it; and the Commission shall communicate its decision to the association or body:
Provided that no association or body shall be registered as a political party under this sub—section unless the memorandum or rules and regulations of such association or body conform to the provisions of sub—section (5).

(8) The decision of the Commission shall be final.

(9) After an association or body has been registered as a political party as aforesaid, any change in its name, head office, office-bearers, address or in any other material matters shall be communicated to the Commission without delay.

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