Introduction to Section 13A of the Income Tax Act
But how is the income of a political party treated under the Income Tax Act? This blog post delves into Section 13A of the Income Tax Act, which provides tax exemptions for political parties in India.
What Does the Term Political Party Mean?
A political party registered under Section 29A of the Representation of the People Act, 1951, is referred to as a political party. This section ensures that the political party is recognized and can avail of the benefits provided under Indian law.
What is Section 13A of the Income Tax Act?
Section 13A of the Income Tax Act is a special provision that provides tax exemptions for political parties. According to this section, any income a political party receives from voluntary contributions or any interest, dividend, or rent from its assets is not included in the party’s total income for taxation.
Exemptions Available for Political Parties
Under Section 13A, a political party’s income from the following sources is exempt from tax:
- Income from house property
- Income from other sources
- Capital gains
- Income by way of voluntary contributions from any individual
Conditions to Avail of Exemptions Under Section 13A
To claim tax exemption under Section 13A, a political party must meet the following requirements:
- Registration: It must be registered under Section 29A of the RPA.
- Books of Account: It must keep books of account and other documents that allow the Assessing Officer to compute its income.
- Record Contributions: It must record every contribution of more than Rs 20,000 along with the name and address of the contributor unless the contribution is made through an electoral bond.
- Audit: It must have its books of account audited by a chartered accountant.
- Donation Limits: It must not have received any donation of more than Rs 2,000 except through account payee cheque/demand draft, ECS, bank account, or electoral bond.
- Report Submission: The treasurer or an authorized person must submit a report of donations received above Rs 20,000 to the Election Commission of India for the financial year on or before the due date for furnishing the return of income for that financial year under Section 29C of RPA.
Furnishing the Return of Income
According to Section 139(4B) of the Income Tax Act, a political party must file a return of income if its income (before claiming exemption) under Section 13A exceeds the basic exemption limit. The tax rate applicable for political parties is the same as that for a normal resident individual. The return of income must be filed and signed by the Chief Executive Officer of the political party for the relevant financial year.
Frequently Asked Questions
Is Tax Exemption for Donation to Political Party Available?
Under Section 80GGC of the Income Tax Act, 1961, an individual can claim a tax deduction for any donations or contributions to any political party or an electoral trust. The entire amount of donation or contribution is eligible for deduction under this section. However, the donation or contribution must be made through legitimate banking channels and not in cash or kind. The individual must also furnish a receipt for proof of donation or contribution.
Which ITR Form is to be Filed by Political Party?
ITR-7 is required to be furnished by the political parties.
Is it Mandatory for Political Parties to Pay Taxes?
Even though political parties cannot participate in commercial activities and cannot make a profit, they do have income from voluntary contributions. Such income is exempt under Section 13A of the Income Tax Act, subject to the furnishing of a report to the Election Commission.
Conclusion
Understanding the tax exemptions available to political parties under Section 13A of the Income Tax Act is crucial. These exemptions help political parties manage their finances more effectively. Ensure your political party meets all the conditions to avail of these benefits and remains compliant with the law.
Internal and External Resources
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Stay informed and ensure your political party complies with all the necessary tax regulations to benefit from the exemptions under Section 13A.
