Individual taxpayers biggest beneficiary of tax deductions claimed on political donations

Among the three categories of taxpayers, individual/Hindu Undivided Family (HUF) taxpayers claimed the most tax benefits of Rs 1,995.04 crore for deductions on account of contributions given to political parties under Section 80GGC of the Income Tax Act during financial year 2024-25, up from Rs 1,765.52 crore in the preceding fiscal.]

Since fiscal 2021-22, individuals and the HUF taxpayers have overtaken the corporate in claiming deductions on account of contributions given to political parties.

An analysis of previous years’ budget documents shows that the revenue impact of deductions claimed by individual taxpayers for political donations has been rising over the years but it saw a surge post-Covid, when it increased from Rs 544.53 crore in 2019-20 to Rs 740.03 crore in 2020-21 and Rs 1,650.86 crore in 2021-22 before peaking at Rs 2,275.85 crore in 2022-23.

In 2024-25, the revenue impact of tax deductions claimed by the corporate taxpayers on account of contributions given to political parties is projected to reach Rs 860.86 crore from Rs 761.82 crore in FY 2023-24.

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The combined revenue impact of tax deductions availed by corporates, firms and individuals/HUF on account of donations to political parties was Rs 2,766.47 crore in FY 2023-24, which is projected to reach Rs 3,126.12 crore in 2024-25.

Under the Income Tax Act, 1961, taxpayers, including Indian companies, firms, Association of Persons (AOPs), Body of Individuals (BOIs), individuals or Hindu Undivided Families (HUFs) are allowed to claim deductions in respect to donations made by them to political parties. These include donations made through cheques, account transfers or electoral bonds.

‘Corporate taxpayers can claim deductions for political donations’

As per the Section 80GGB of the Income Tax Act, 1961 corporate taxpayers can claim deductions on account of donations made by them to political parties.

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

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A similar benefit is available to individual taxpayers under Section 80GGC.

“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…,” states Section 80GGC of the Income Tax Act.

Like individuals, non-corporate taxpayers (firms/AOPs/BoIs) are also allowed to claim deduction under Section 80GGC in respect of any sum contributed by them to political parties by way of 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”.