This piece of informative input is received from one of my friend Nishit Zaveri who is a Chartered Accountant and a Senior Asscociate at a Big4 firm.
Under the Income-tax Act, donations (to anyone) is not allowable under Section 37(1) of the Income-tax Act, 1961 (the Act) as it is not for the wholly and exclusively for the purpose of the business. However, there are some case laws where the taxpayer could prove the nexus between the donation and the business purpose. Thus, if the taxpayer can prove the nexus, such donation exp. can be allowed. Apparently, no taxpayer will claim donation to political party as an allowable exp. (as nexus and benefit from such donation cannot be proved before Assessing Officer…J J)
Further, the Act specifically disallows any expenditure incurred by assessee on advertisement in any souvenir, brochure, tract, pamphlet or the like published by a political party by virtue of Section 37(2B) of the Act. Thus, even if such advt. exp. is for the purpose of business still it will not be allowed.
However, the donations are eligible for deduction (50% or 100%) u/s 80G/80GGB/80GGC of the Act (if the trust or political party is approved and registered etc….). Thus, even if it is not allowed while computing profits still the taxpayers gets the benefit under the Act. So if the taxpayer wants to claim deduction on donations made to political party it will have to disclose the information in its return of income. Since the return of income is not a public document the same will not have any problem with respect to association with any party.
Further, the political parties can receive any amount in cash as donation. However, if it does not maintain a record of such contribution and the name and address of the person who has made such contribution, the income received in excess of INR 20,000 in cash will be taxable.
PS Also the companies Act has a limit for donations to political parties but that is only applicable to companiesProvisions of Section 293A of the companies Act restricts a limit of donation to political party to 5% of the profits with some other conditions.
4 comments:
I was wondering, what prohibits a promoter of a company paying the political parties in cash? Can an Ambani not pay cash to a party even if RIL cannot as per tax laws?
Anybody can give donations but then Income tax act may not allow donation in some cases. There is no problem of donations given to political parties. Only thing is there has to be a transparency of the people giving donations.
Countries like Aus, US have amended their Income Tax act and dont allow deductions to the individuals earning income under the head business and profession givin donations.
Sir I read your post and discussed it with one of my college professor. He said what you've written is absolutely correct but on the other hand there have been case laws where the assessee has proved that even giving bribes and donations [say i.e.protection money] to local politicians [goons] was also important for him to run his biz smoothly and on that basis deduction was made available to him. This is [i.e. giving bribe] is totally unlawful but the main point was that it had become one of the basic thing for the assessee to run his biz. His point of discussion also included that the IT Act itself does not bifurcates b/w legal and illegal source of income so to divide the exp. was also not feasible coz this is a geniune case. We all know those who give donations to a political party are just doing nothing but asking for a favour in the name of donation. It's like 'bhau humko maaf karo, humko dhandha kar ke apna ghar chalana hai'. Regards.
..............In most of the cases, there are mutual understandings between parties to allow the corporate to convert their black money into party contributions. Such arrangement also gives a leeway to hawala, untraceable and undeclared money transfer. There are no laws in place that ask parties to file disclosures about the usage of money or rather there is no third-party independent audit about the deployment of such donations. Moreover, PAN Number filing for lower denomination is not even mandatory. And in case the PAN Number is filed, there are no cross-checks to verify the credibility.The matter gets worse in case of cash donations. The recent garland (worth a few hundred crores) gifted to Mayawati, is a case in point......
Originally Posted at : http://prasoonsmajumdar.blogspot.com/2011/07/business-of-donations.html
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