From Rs 170 Crore In FY15 To Nearly Rs 4,000 Crore In FY23: Tax Concessions For Political Donations Continue To Surge

The tax deductions availed by corporates, firms, and individuals on account of donations to political parties had a revenue impact of Rs 3,967.54 crore, according to the Finance Ministry projections made in the Union Budget 2024-25.

This amount is 13 per cent higher than that of 2021-22, reflecting a continued increase in electoral funding, which has shown a significant upward trend over the past nine years, according to an analysis of previous Union Budgets, Indian Express reported.

In 2021-22, tax concessions for political donations amounted to Rs 3,516.47 crore, marking a 300 per cent increase from the previous year.

In 2014-15, the figure stood at Rs 170.86 crore.

Over the nine years since 2014-15, the total revenue impact of these tax concessions is estimated at Rs 12,270.19 crore. The data for FY 2023-24 is yet to be made public.

The Income Tax Act, 1961 allows taxpayers, including Indian companies, firms, Associations of Persons (AOPs), Bodies of Individuals (BOIs), individuals, and Hindu Undivided Families (HUFs), to claim deductions in respect to donations made to political parties.

These deductions cover donations made via cheques, account transfers, or electoral bonds.

For FY 2022-23, corporate taxpayers contributed the largest share of the projected revenue impact, amounting to Rs 2,003.43 crore, through donations under Section 80GGB.

Section 80GGB of the Income Tax Act states that “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.”

However, it does not allow deductions “in respect of any sum contributed by way of cash”.

Under Section 80GGC, individuals claimed tax concessions amounting to Rs 1,862.38 crore for political donations, while non-corporate taxpayers (firms, AOPs, BOIs) claimed Rs 101.73 crore.

“In computing the total income of an assessee, being any person, except local authority and every artificial juridical person wholly or partly funded by the Government, there shall be deducted any amount of contribution made by him, in the previous year, to a political party or an electoral trust… ,” Section 80GGC of the Income Tax Act states.

Similar to companies, individuals cannot claim deductions under Section 80GGC for contributions to political parties made in cash.

For the purpose of the Section 80GGB and 80GGC, the Act defines the term “political party” as “a political party registered under section 29A of the Representation of the People Act, 1951”.

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