Deduction in respect of contributions given by companies to political parties [Section 80GGB] :
(i) This section provides for deduction of any sum contributed in the previous year by an Indian company to any political party or an electoral trust. However, no deduction shall be allowed in respect of any sum contributed by way of cash.
(ii) For the purposes of this section, the word “contribute” has the same meaning assigned to it under section 293A of the Companies Act, 1956, which provides that –
(a) a donation or subscription or payment given by a company to a person for carrying on any activity which is likely to effect public support for a political party shall also be deemed to be contribution for a political purpose;
(b) the expenditure incurred, directly or indirectly, by a company on advertisement in any publication (being a publication in the nature of a souvenir, brochure, tract, pamphlet or the like) by or on behalf of a political party or for its advantage shall also be deemed to be a contribution to such political party or a contribution for a political purpose to the person publishing it.
(iii) “Political party” means a political party registered under section 29A of the Representation of the People Act, 1951.
Illustration
During the P.Y.2015-16, ABC Ltd., an Indian company,
(1) contributed a sum of Rs 2 lakh to an electoral trust; and
(2) incurred expenditure of Rs 25,000 on advertisement in a brochure of a political party.
Is the company eligible for deduction in respect of such contribution/expenditure, assuming that the contribution was made by cheque? If so, what is the quantum of deduction?
Solution
An Indian company is eligible for deduction under section 80GGB in respect of any sum contributed by it in the previous year to any political party or an electoral trust. Further, the word “contribute” in section 80GGB has the meaning assigned to it in section 293A of the Companies Act, 1956, and accordingly, it includes the amount of expenditure incurred on advertisement in a brochure of a political party.
Therefore, ABC Ltd. is eligible for a deduction of Rs 2,25,000 under section 80GGB in respect of sum of Rs 2 lakh contributed to an electoral trust and Rs 25,000 incurred by it on advertisement in a brochure of a political party.
It may be noted that there is a specific disallowance under section 37(2B) in respect of expenditure incurred on advertisement in a brochure of a political party. Therefore, the expenditure of Rs 25,000 would be disallowed while computing business income/gross total income. However, the said expenditure incurred by an Indian company is allowable as a deduction from gross total income under section 80GGB.