Income Tax Exemptions for Political Parties in India

Do Political Parties Pay Income Tax?

Political parties in India have to legally refrain from participating in commercial activities that are a source of income and, hence, generate profits. The acceptable sources of income are voluntary contributions under Representation of Peoples Act (RPA), 1951. Some other income sources are from membership fee, sale of coupons, etc.

Section 13A of the RPA provides political parties 100% exemption on income from house property, income from other sources, voluntary contributions and capital gains, subject to certain terms and conditions.

Applicability of Section 13A

Below are the conditions that political parties of India need to comply to be able to avail the tax exemptions as per Section 13A need to fulfil the following conditions:

Political parties have to be registered under Section 29A of the RPA.

Keep a detailed record of accounts and other relevant documents as proofs for the Assessing Officer to calculate the total annual income and the sources. However, as specified by Section 44AA, political parties do not have to keep a record of all accounts, but only those that are necessary for the AO to deduce its annual income.

Maintain records of all voluntary contributions that exceed Rs. 20,000, along with the corresponding names and addresses of individuals who have made these contributions. This is necessary only when the contribution has not been made through electoral bond.

Hire professional Chartered Accountants to get books of account audited.

Not receiving donation exceeding Rs. 2,000 by any way except through account payee cheque or demand draft or ECS or through bank account or electoral bond.

Treasurer of the political party or any individual authorized by the party to prepare on its behalf a report of donations that exceed Rs. 20,000 to Election Commission of India for the financial year on or before the due date for filing the return of income for the same financial year, as per Section 29C of RPA.

Section 29C of RPA refuses political parties the right to tax relief on its inability to present the abovementioned report.

Income Tax Return Form for Political Parties

It is mandatory for political parties to submit Form ITR 7 to declare their annual income tax returns every financial year. The following are the information details that have to be filled up in Form ITR 7:

Balance sheet: Information about the source of funds – general fund, loan, etc. and their subsequent application or expenses in the form of investments, assets, advances, etc.

Account of Income and Expenditure: Income from voluntary contributions, donations, fee, grants, sale of coupons, etc. and subsequent expenses.

Contribution Report: Record of donations exceeding Rs. 20,000, along with the names of donors

Registered or unregistered under Section 13A of RPA, 1951.

Reported or not reported under Section 29C of RPA, 1951, along with the date of submission of report.

Tax Exemption for Corporate Donors

According to Section 80GGB, corporate donors can avail claim exemption on its donation to political parties registered under this section. The section also enables other individuals, with the exception of local authorities and every artificial juridical individual who is wholly or partially funded by the Government, to claim exemption under Section 80GGC. However, this provision holds true only for contributions made via any payment mode other than cash.

What is ‘Political Party for the Purpose of Section 13A’?

The phase ‘Political party for the purpose of Section 13A’ refers to a political party that is registered under Section 29A of the Representation of the People Act (RPA), 1951.

Frequently Asked Questions

What is income tax exemption under Section 80GGC of the Income Tax Act?

Section 80GGC of the Income Tax Act deducts a certain amount from the gross total income of an individual assessee for voluntary contributions towards a political party or an electoral trust. The entire contribution made under Section 80GGC is eligible for tax deduction.

Are voluntary donations to political parties’ tax deductible?

Voluntary contributions or donations to political parties do not attract tax deductions.

How much tax exemption can Indian political parties enjoy?

Political parties in India are eligible for 100% tax exemption on all income sources as per Section 13A of the Income Tax Act. However, it is mandatory for them to declare the total annual income of the financial year and their sources to the Income Tax Department. They enjoy 100% tax exemption from all sources of income.

What are the tax benefits that corporate donors can avail on Section 80GGB?

Corporate donors are eligible for 100% tax exemption on the donation made to political parties registered, as per Section 80GGB. However, this is applicable only for corporate contributions made via any payment mode except cash.

What is the maximum amount that can be donated to a political party in cash?

The maximum amount that can be paid in cash as donation to any political party in India is Rs. 2,000.

What are the accepted payment methods for voluntary contributions to a political party in India?

Below are the acceptable payment modes for voluntary contributions towards a political party in India:

Account payee cheque
Demand Draft
ECS
Payment through bank account
Electoral bond

What do political parties have to submit as proof of their annual income?

Political parties have to submit records of accounts that enable the Account Officer to deduce its annual income, as specified by Section 44AA. Any other record of accounts does not have to be submitted as proof of their annual income.

What is Form ITR 7?

Political parties have to submit Form ITR 7 to declare their annual income tax returns every financial year.

What is Contribution Report, as mentioned in Form ITR 7?

Under the Contribution Report, a political party has to mention the record of donations exceeding Rs. 20,000, along with the names of donors.

What are the lawfully accepted income sources of political parties in India?

Below are the legally accepted income sources of political parties in India:

Voluntary contributions
Donations
Grants
Sale of coupons