Income Tax Exemptions for Political Parties

Political parties in India are managed by The Representation of the People Act, 1951 (RPA). Any association of the Indian citizens or the body of individual citizens of India calling itself a political party needs to make an application to the Election Commission to get themselves registered under Section 29A as a political party in order to take part in elections and for other provisions under RPA. The Representation of the People Act, 1951 (RPA) also allows political parties to receive charitable contributions from anyone including corporate (but not Government company) and excluding contributions from the foreign sources like citizens of foreign country, foreign company, foreign corporation, foreign trust etc.

India’s political parties like BJP, Congress, AIDMK, and AAP etc are all registered with the Election Commission under The Representation of the People Act, 1951 (RPA) .

What is a political party for the purpose of Section 13A?

Political party for the purpose of the Section 13A of the act means a political party which is registered under the Section 29A of the Representation of the People Act, 1951.

Do political parties pay any tax?

Political parties are banned from taking any activity of commercial nature and thereby earning profits. This does not mean that the political party does not have any income at all. As previously mentioned Political parties are allowed to accept charitable contributions under RPA. Further, political parties may also hold immovable properties or deposits which may be earning income. Political parties have income generated from sale of coupons, membership fee collected etc.

though, Section 13A of the act has given 100% exemption to the political parties on its income from the house property, income from other sources, capital gains and voluntary contributions received from any person however, subject to certain conditions. These conditions have been discussed below.

Representation of People’s Act (RPA)

According to Representation of People’s Act (RPA), the political party needs to file the income tax return during the financial year stating the details of all the donors who have contributed more than Rs. 20,000/-. Each year the copy of this income tax return is sent to the Election Commission on an Annual basis. If the political party doesn’t provide the details to the Election Commission of India, they might be dis-entitled to claim the tax benefits.

Provision under Companies Act, 2013

As per the Companies Act, 2013 the company may give a donation to the political party when the company in operative constantly from last 3 years. The maximum contribution a company may donate to a political party is 7.5% of its profits. Such contribution made by the company must reflect on Profit and Loss account.

As per the clauses of MOA/AOA, a donation made to a political party may require the authorization of the Board of Directors. Which could be done through passing a resolution in Board Meeting? If the contravenes, the provision of the section, the company might be punishable with a fine which may extend to five times of the amount which was contributed and every officer in default will be punishable with imprisonment for a term which may extend to six months and fine.

Conditions for the applicability of Section 13A

Political party to enjoy tax the exemption provided under Section 13A of the act need to fulfil the following conditions:

To be registered under Section 29A of the Representation of People’s Act (RPA)

To maintain the books of account and other documents so as to enable the Assessing Officer to deduct its income – It may be noted that the Political party need not maintain all books of account as mentioned under Section 44AA of the act. It is satisfactory if political party maintains only such books for the AO to arrive at its income

To maintain the records of each contribution of more than Rs 20,000 including the name and the address of the person making such contributions unless the contribution is made by way of electoral bond

To get its books of account audited by a chartered accountant on regular basis.

Has not received any donation of a value more than Rs 2,000 otherwise than by way of account payee cheque/demand draft or ECS or by bank account or electoral bond

Treasurer of political party or any person authorised by the political party in this behalf has furnished a report of the donations received in excess of Rs 20,000 to Election Commission of India for the financial year on or before due date for filing the return of income for such financial year under Section 29C of Representation of People’s Act (RPA)

While the condition of no tax relief for non furnishing of such report is coming out of Section 13A of the act, it may be noted that Section 29C of Representation of People’s Act (RPA) itself takes away tax relief to the political party if it fails to furnish such report.

4. Is political party required to furnish the return of income? If yes, who is the authorized signatory?

Yes, though the political party has 100% exemption on specified income, it is not given any relief from furnishing the return of income. Any political party as per Section 13A under the act is required to furnish return of income under Section 139(4B) of the act if its income exceeds maximum amount not chargeable to tax. Tax slab applicable for political parties is same as applicable to resident individual.

It is the responsibility of Chief Executive Officer (CEO) of the political party to file the return of income and also to sign and verify the same.

5. Income tax return form to be filed by the political parties

It is necessary for the Political parties to furnish their return of income in ITR 7. ITR contains following major information to be filled up by the political parties:

Balance sheet – broad information concerning main source of funds (corpus/general funds, loans etc) and application of funds i.e. asset, investment, advances etc
Income and Expenditure Account – Income from fees or grants, donations sale of coupons etc and expenses incurred.
Contribution report – Details regarding the donors who made contribution in excess of Rs 20,000/-
Whether political party is registered under Section 13A of the act.
Whether report under Section 29C of Representation of People’s Act (RPA) is filed and date of submission of report

6. Is there any tax exemption for the donors?

Corporate donors are entitled to claim the exemption on its donation to political parties under Section 80GGB and any other person except the local authority and every artificial juridical person wholly or partly is funded by the Government, can claim exemption under Section 80GGC of the act, unless such contribution is made by way of other than that of cash.

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