Today morning we were working on a year-end tax planning for a young self-employed law professional. We meticulously went through several provisions and identified deductions and exemptions that would enable him to legitimately reduce his tax liability to the maximum possible extent. One of the provisions we discussed in detail which has tremendous relevance in the current scenario was deduction in respect of donations to political parties for which the donor can get a tax deduction.
Introduction
People support political parties because they agree with them or want to help pay for their activities, especially during election times. Donations to these parties can reduce your taxes under Section 80GGC, just like deductions for medical expenses. To claim this tax benefit, you only need a receipt from the party. We do not require any proof of how the party is spending the money. This deduction was introduced in 2009 as part of the Finance Act.
Our young law professional’s concern was that the Tax Department is looking more closely at donations to political parties. They have sent notices to people who donated to parties registered but not officially recognized by the Election Commission.
As per a recent amendment, if you earn more than Rs. 50 lakh and make donations to political parties the Income Tax Department will ask you for more information about those donations. [This information is for informational purposes only. If you receive a notice from the Income Tax Department, you should consult with a tax professional]
What is Section 80GGC?
The Income Tax Act allows deductions from your Gross Total Income on donations made by you to political parties. This benefit is under Section 80GGC of the Income Tax Act, 1961. There are a few rules to follow:
Your donation must be to a registered political party, not just any group.
You can't donate cash or in kind. You have to make out a cheque or any other traceable method.
There's no limit on how much you can claim by way of deduction. The deduction is however limited to your total income for the year.
What are the eligibility criteria u/s 80GGC
Only individuals, families (Hindu Undivided Families or HUFs), small businesses operated by firms, and certain trusts (AOPs and BOIs) can qualify. Companies, government agencies, and some trusts can't use this deduction.
What parties qualify
Donations must go to registered political parties or electoral trusts.
What you need to maintain by way of records
Get a receipt showing your donation amount, name, and the party or trust's registration number.
How to donate
You can't donate cash or in kind.
Other relevant points to remember
You can donate to multiple parties and still claim the deduction.
If you're employed, give your donation details to your employer so they can include it on your Form 16. Otherwise, you'll need to enter it yourself when filing your tax return.
When you file your income tax return there's a section (80GGC) on the form where you have to list your donation amount.
The content made available in this article is for general informational purposes only. While every effort has been made to ensure the accuracy and completeness of the content, it should not be considered as a substitute for professional consultation.
No comments:
Post a Comment