TAXATION OF POLITICAL PARTY IN INDIA
TAXATION OF POLITICAL PARTY IN INDIA
TAXATION OF POLITICAL PARTIES
- What do you mean by Political Party as per Income Tax Act, 1961?
A political party means a political party registered under Section 29A of the Representation of the People Act, 1951.
A political party is a group of people who come together to contest elections and hold power in the government. They agree on some policies and programs for the society with a view to promote the collective good.
- Taxation of Political Party?
Political parties are barred from taking any activity of commercial nature and thereby earning profits. Political parties are allowed to accept voluntary contributions under Representation of the People Act, 1951. Further they may also own immovable properties or deposit from which they can earn income like interest, rent etc. Political parties may also have income from sale of coupons, membership fees collected, and more.
However, Section 13A has given 100% exemption to political parties on their income from House property, income from other sources, capital gains and voluntary contribution received from any person subject to certain conditions which have been discussed below:
Conditions for applicability of Section 13A
Political parties are exempted from paying tax under Section 13A if they fulfil the following conditions.
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S.NO |
CONDITION |
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To be registered under Section 29A of the Representation of the People Act, 1951. |
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To get its account audited by a Chartered Accountant. |
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Maintain books of accounts and other documents to enable the Assessing Officer to deduce its income.
NOTE: It may be noted that the Political party need not maintain all the books of accounts as mentioned under Section 44AA. It is sufficient if a political party maintains only such books for Assessing Officer to arrive at its income. |
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To maintain record of each contribution of more than Rs. 20,000, including the name and address of the person making such contribution unless such contribution is made by way of electoral trust. |
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Has not received any donation of more than Rs. 2,000 otherwise than by way of account payee cheque/ demand draft or ECS or through bank account or Electoral Bonds. |
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Treasurer of political party/ any person authorized by the political party on this behalf has furnished a report of donations received in excess of Rs. 20,000 to the Election Commission of India for the Financial Year on or before the due date for filing the return of income tax for such financial year under Section 29C of Representation of the People Act, 1951. |
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Political party must file return of income on or before the due date u/s 139(4B). |
Example:
The books of accounts maintained by a National Political Party registered with Election Commission for the year ended 31.03.2024 is as follows:
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S.no |
Particular |
Amount (in Rs.) |
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Rent of property let out |
6,00,000 |
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Interest on deposits |
5,00,000 |
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Contribution of Rs. 21,000 each from 100 persons (who have secreted their name) |
21,00,000 |
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Contributions from 10 persons by way of electoral bonds of Rs. 25,000 each |
2,50,000 |
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Cash donations @ Rs. 2,100 each from 1,000 members (recorded in books of accounts) |
21,00,000 |
The income of the Political Party is fully exempt as per Section 13A if they fulfil the conditions mentioned therein. Since, in the given question the political party has violated the conditions like accepting cash donations of more than Rs. 2,000 and not maintaining records of persons giving donations more than Rs. 20,000 they are liable to pay tax on its total income which is computed as below:
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S.no |
Particulars |
Amount (In Rs.) |
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Rent of the property (6 lakhs less 30% deduction u/s 24) |
4,20,000 |
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Interest received on deposits |
5,00,000 |
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Contribution from 100 persons (who have secreted their name) of Rs. 21,000 each |
21,00,000 |
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Contributions from 10 persons by way of electoral bonds of Rs. 25,000 each |
2,50,000 |
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Cash donations @ Rs. 2,100 each from 1,000 members (recorded in books of accounts) |
21,00,000 |
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TOTAL INCOME |
53,70,000 |
- Is it mandatory for Political Party to File Income Tax Return?
Yes, even though the specified income of Political Party is fully exempt as per Section 13A, it is not given any relief from furnishing of income. All Political parties are mandatorily required to file return of income on or before the due date of filing of return, if the income exceeds maximum amount not chargeable to tax (limit is considered before taking into consideration Section 13A exemption). Tax slab applicable to political parties is as Follows:
Slab rate under old scheme for Political Parties: -
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Annual Taxable Income |
Tax Rate |
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Upto Rs. 2,50,000 |
Nil |
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Rs. 2,50,000 to Rs. 5,00,000 |
5% |
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Rs. 5,00,000 to Rs. 10,00,000 |
10% |
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Above Rs. 10,00,000 |
30% |
Slab rate for Political Parties under new scheme is as follows: -
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Annual Taxable Income |
Tax Rate |
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Upto Rs. 3,00,000 |
Nil |
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Rs. 3,00,000 – Rs. 7,00,000 |
5% |
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Rs. 7,00,000 – Rs. 10,00,000 |
10% |
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Rs. 10,00,000 – Rs. 12,00,000 |
15% |
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Rs. 12,00,000 – Rs. 15,00,000 |
20% |
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Above Rs. 15,00,000 |
30% |
Surcharge
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Annual Taxable Income |
Surcharge under new scheme |
Surcharge under old scheme |
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Less than Rs. 50,00,000 |
Nil |
Nil |
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More than Rs. 50,00,000 less than Rs. 1,00,00,000 |
10% |
10% |
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More than Rs 1 crore less than Rs. 2 crores |
15% |
15% |
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More than Rs. 2 crores less than Rs. 5 crores |
25% |
25% |
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More than Rs. 5 crores. |
25% |
37% |
In addition to tax and surcharges CESS of 4% is applied.
NOTE:
It is the responsibility of the Chief Executive Officer of the Political party to file the return of income and also to sign and verify the same.
- Income Tax Return to be filed by Political Parties?
Political Parties are required to furnish their return of income in form ITR-7. ITR contains following major information to be filed by the political parties:
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S.NO |
Some Major Information in ITR |
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Balance Sheet: broad information regarding main source of funds (corpus/ general funds, loans etc.) and application of funds (assets, investment, advances etc.) |
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Income and Expenditure Account: Income from fee/ grants, donation, sale of coupons etc. and expenses. |
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Contribution Report: Details regarding donors who made contribution in excess of Rs. 20,000. |
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Whether political party is registered under Section 13A. |
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Whether report under Section 29C of the Representation of the People Act, 1951 is filed and date of submission of such report. |
- Is there any Tax Exemption for donors?
Corporate donors are eligible to claim deductions on its donations to political parties under Section 80GGB and any other person (except local authority and every artificial juridical person wholly or partly funded by the government) can claim exemptions under Section 80GGC, unless such contributions are made in cash.
