Section 80GGC of Income Tax Act: Deduction Limits, Eligibility, and Exceptions

Section 80GGC of Income Tax Act, 1961 provides a tax deduction to individuals making donations to registered political parties or electoral trusts in India. This provision encourages financial participation in the political system while offering tax benefits to taxpayers. To ensure complete transparency and minimize misuse, the government has set specific rules, eligibility criteria, and restrictions under Section 80GGC of Income Tax Act. Let us explore this provision in detail to help you understand how to legally save on tax through political donations.

What is Section 80GGC of Income Tax Act?

Section 80GGC of the Income Tax Act, 1961 is a provision that allows a tax deduction for any donation made to a registered political party or electoral trust. The primary purpose behind this section is to promote transparency in electoral funding and reduce corruption. When individuals financially support political parties through recognized channels, they are allowed to claim the donated amount as a deduction from their total gross income while filing the income tax return.

The benefit is available only under the old tax regime and not under the new tax regime introduced in Budget 2020. It is important that the contributions are not made in cash or kind. All donations must be made through verifiable, traceable methods like online transfer, cheques, demand drafts, credit or debit cards.

Latest Update from Income Tax Department

The Income Tax Department recently issued an advisory that donations claimed under Section 80GGC of Income Tax Act in the ITRs of Assessment Years 2022-23, 2023-24, and 2024-25 may be verified. Taxpayers have been urged to review their claims, maintain supporting documentation such as donation receipts, and update any discrepancies by filing an Updated ITR before March 31, 2025. If discrepancies are not rectified, taxpayers could face scrutiny, penalties, or denial of deductions.

Eligibility for Section 80GGC Deduction

Any person except the following entities can claim a deduction under Section 80GGC of Income Tax Act:

• Companies

• Local authorities

• Artificial juridical persons that are wholly or partially funded by the government

This means individuals, Hindu Undivided Families (HUFs), firms, associations of persons (AOPs), bodies of individuals (BOIs), and artificial juridical persons not funded by the government are eligible to claim this deduction. Importantly, the taxpayer must be assessed under the old tax regime.

Accepted Contributions under Section 80GGC

Section 80GGC of Income Tax Act allows deductions only for contributions made to:

• A political party registered under Section 29A of the Representation of the People Act, 1951

• An electoral trust established as per the guidelines of the Central Board of Direct Taxes (CBDT)

Any donation made to unregistered political entities or organizations that do not qualify as electoral trusts will not be eligible for deduction under Section 80GGC.

Donation Modes Accepted

To claim deduction under Section 80GGC of Income Tax Act, contributions must be made through any of the following cashless modes:

• Internet banking

• Cheques

• Demand drafts

• Debit cards

• Credit cards

• UPI or NEFT/RTGS

Donations made in cash or in kind, such as gifts, goods, or services, are not eligible for deduction. This restriction ensures accountability and traceability of contributions.

Section 80GGC Deduction Limits

Under Section 80GGC of Income Tax Act, a taxpayer can claim 100% of the amount donated as a deduction from their total gross income, subject to the following conditions:

• The total deduction claimed under this section should not exceed the total income of the individual taxpayer in the financial year.

• The donations must not be made in cash or kind.

• The total limit of donations under Section 80GGC may also be governed by internal policies, with some interpretations suggesting a practical limit of 10% of gross income for scrutiny purposes, although this is not specified in the Act.

Documents Required to Claim Deduction

To claim a deduction under Section 80GGC of Income Tax Act, you must maintain the following documents:

• Receipt or certificate from the political party or electoral trust containing the donor's name, amount donated, PAN, and registration number of the party/trust

• PAN of the political party or electoral trust

• Proof of payment (bank statement, credit card slip, cheque copy, etc.)

• Form 16 in case the donation is routed through the employer

• Income Tax Return (ITR) filed for the relevant financial year

These documents are important to verify your claim if the tax authorities question your deduction.

Exceptions under Section 80GGC

The following exceptions apply under Section 80GGC of Income Tax Act:

• Donations made in cash are not allowed as deductions. Only donations through verifiable banking channels are permitted.

• Contributions made in kind or gifts, such as goods or services, are not deductible.

• Any contributions to political parties that are not registered under Section 29A of the Representation of the People Act, 1951, are ineligible.

• Individuals paying tax under the new tax regime are not eligible to claim deductions under this section.

Difference Between Section 80GGB and Section 80GGC

The difference between Section 80GGC and Section 80GGB lies in the nature of the contributor:

• Section 80GGC of Income Tax Act allows individuals, HUFs, firms, and other non-corporate entities to claim deductions for donations to political parties.

• Section 80GGB allows Indian companies to claim similar deductions for contributions made to registered political parties or electoral trusts.

Both provisions serve the purpose of encouraging political funding through clean and transparent means but apply to different types of taxpayers.

Procedure to Claim Tax Deduction

The procedure to claim a deduction under Section 80GGC of Income Tax Act is as follows:

• Make the donation through a non-cash mode.

• Obtain a donation receipt or certificate from the political party or electoral trust.

• Ensure the political party or trust has a valid PAN and registration number.

• Mention the donation amount under Section 80GGC in your Income Tax Return form under Chapter VI-A.

• If the contribution was routed through the employer, ensure that the employer has issued a certificate reflecting the donation.

• Retain all supporting documents for verification in case of a query from the Income Tax Department.

Case Study and Real-World Example

Recently, a salaried taxpayer received a notice from the Income Tax Department. The taxpayer had claimed a deduction of Rs. 2,50,000 under Section 80GGC in their ITR for AY 2023-24. The ITD message read:

"Dear Taxpayer, It is observed that you have claimed deduction under section 80GGC of Rs. 2,50,000 in your ITR for A.Y. 2023-24. It is requested that the claim may be verified and mistake, if any, may be rectified by updating the ITR for A.Y. 2023-24 by 31.03.2025."

This case shows the importance of maintaining proper documentation and ensuring the correctness of your claims. If a claim is genuine, no further action is required. However, if the deduction was wrongly claimed, an Updated ITR (ITR-U) must be filed before the deadline to avoid penalties.

Taxpayer Checklist

To avoid any issues when claiming deduction under Section 80GGC of Income Tax Act:

• Ensure the political party is registered under Section 29A

• Avoid making cash or in-kind donations

• Retain a valid receipt with PAN and registration details

• File your ITR under the old tax regime

• Maintain digital or physical copies of all transaction proofs

Conclusion

Section 80GGC of Income Tax Act is a taxpayer-friendly provision that allows individuals to financially support the democratic process while reducing their tax burden. However, this benefit is allowed only under strict conditions, including the mode of donation, type of recipient, and documentation. With recent updates from the Income Tax Department highlighting verification of such claims, it has become even more important to exercise caution while claiming deductions under Section 80GGC. Always consult a qualified tax expert, such as professionals from Compliance Calendar LLP, to ensure that your deductions are valid, compliant, and properly supported by documents.

If you have made a donation to a political party or electoral trust this financial year, remember to verify the eligibility of your donation, gather all relevant documents, and file your return accurately. Filing an incorrect ITR with unsubstantiated deductions can attract penalties and scrutiny. Plan your taxes carefully and stay updated with Income Tax notifications to make the most of lawful deductions under Section 80GGC of Income Tax Act.

If you want any support, you can connect with Compliance Calendar LLP experts through email at info@ccoffice.in or Call/Whatsapp at +91 9988424211.

Frequently Asked Questions (FAQs)

Q1. Who is eligible to claim a deduction under Section 80GGC of the Income Tax Act?

Ans. Section 80GGC allows deductions for contributions made to political parties or electoral trusts by:

• Individual taxpayers (including salaried employees and business owners),

• Hindu Undivided Families (HUFs),

• Associations of Persons (AOPs) and Bodies of Individuals (BOIs),

• Firms, and

• Artificial Juridical Persons not funded by the government.

  However, companies, local authorities, and government-funded AJPs are not eligible, as they fall under Section 80GGB instead.

Q2. Can contributions made in cash to a political party be claimed under Section 80GGC?

Ans. No, contributions made in cash are not eligible for deduction under Section 80GGC. Since the financial year 2013-2014, only donations made through banking channels such as internet banking, credit cards, debit cards, cheques, or demand drafts are permitted to claim the tax benefit.

Q3. Is there a maximum limit on the amount that can be claimed as a deduction under Section 80GGC?

Ans. There is no specific monetary ceiling under Section 80GGC. Taxpayers can claim a deduction for 100% of the amount contributed to a registered political party or electoral trust. However, the total deduction under Chapter VIA, which includes Section 80GGC, cannot exceed the total taxable income—meaning it cannot bring the taxable income below zero.

Q4. Can a taxpayer claim the deduction under Section 80GGC if they opt for the new tax regime?

Ans. No, deductions under Section 80GGC are only available to taxpayers who opt for the old tax regime. If you choose the new tax regime introduced under Section 115BAC, you cannot claim deductions under Chapter VIA, including 80GGC.

Q5. What documentation is required to claim the deduction under Section 80GGC?

Ans. To claim the deduction under Section 80GGC, taxpayers need:

• A donation receipt from the political party or electoral trust with details like PAN, address, and payment method,

• Income Tax Return (ITR) form with the contribution correctly declared,

• Form 16 (if salaried) showing the contribution if declared to the employer, and

• Proper proof of the transaction if paid via cheque, online transfer, or demand draft.