TaxTMI 
TaxTMI 
Transparency and Tax Incentives in Political Funding : Clause 136 of the Income Tax Bill, 2025 Vs. Section 80GGB of the Income-tax Act, 1961
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.... behind such provisions is to regulate and bring transparency to the funding of political parties by corporate entities, while providing tax incentives for lawful and traceable contributions. The evolution from Section 80GGB of the Income-tax Act 1961 to Clause 136 of the Income Tax Bill, 2025 Bill reflects legislative responses to changing socio-political realities, concerns about transparency in political funding, and the need for harmonization with other statutory frameworks such as the Companies Act and the Representation of the People Act. This commentary provides a comprehensive analysis of Clause 136, its objectives, detailed provisions, practical implications, and a comparative assessment with Section 80GGB, highlighting both conti....
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....excluding foreign companies or other forms of business entities. * Eligible Recipients: Contributions must be made to (a) political parties registered u/s 29A of the Representation of the People Act, 1951, or (b) electoral trusts. This ensures that only officially recognized political parties and regulated intermediary trusts are eligible recipients. * Mode of Contribution: The explicit exclusion of cash contributions ("other than by way of cash") aligns with the policy of promoting traceable, bank-based transactions. This is a safeguard against the flow of unaccounted money into political processes. 2. Definition of "Contribute" Clause 136(2) provides that the word "contribute", with its grammatical variations and cognate expressions....
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.... core features are: * Eligible Assessee: Indian companies only, similar to Clause 136. * Eligible Recipients: Political parties and electoral trusts. The section does not explicitly mention registration u/s 29A of the Representation of the People Act, but this is implied by the definition of "political party" in the General Clauses Act and other relevant statutes. * Mode of Contribution: The proviso (inserted by the Finance Act, 2013) disallows deduction for cash contributions, thus requiring non-cash (bank, cheque, digital) modes for eligibility. 2. Definition of "Contribute" The Explanation to Section 80GGB clarifies that "contribute", with its grammatical variations, has the meaning assigned to it u/s 293A of the Companies Act, 1....
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.... party be registered u/s 29A of the Representation of the People Act, 1951. This explicit requirement strengthens the linkage between tax benefits and compliance with electoral law. Implication: The explicit reference in Clause 136 reduces the scope for ambiguity and ensures that only recognized political parties are eligible for such contributions. 3. Mode of Contribution * Section 80GGB: Prohibits deduction for contributions made by way of cash, as per the proviso inserted in 2013. * Clause 136: From the outset, only allows deduction for contributions "other than by way of cash". Implication: Both provisions now converge on the requirement for non-cash contributions, reflecting a policy shift towards traceable, accountable politica....
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....d mode of payment, to substantiate the deduction in case of scrutiny. * Audit and Reporting: The alignment with section 182 of the Companies Act imposes additional obligations for disclosure in financial statements and annual reports, thereby increasing transparency to shareholders and regulators. For Political Parties and Electoral Trusts * Registration Compliance: Political parties must ensure their registration u/s 29A of the Representation of the People Act, 1951, is current and valid to be eligible recipients. * Disclosure: Electoral trusts are required to comply with guidelines issued by the Central Board of Direct Taxes (CBDT) and maintain transparency in the receipt and disbursement of funds. For Tax Authorities * Verifica....
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....ctions are available for certain political contributions within specified limits. The Indian approach, which allows deductions but restricts the mode of contribution and recipient eligibility, represents a middle ground between outright prohibition and unregulated contributions. The explicit linkage to registration and company law standards is a unique feature designed to enhance transparency and accountability. Potential Ambiguities and Issues for Interpretation * Definition of "Electoral Trust": Both provisions reference "electoral trust" without providing a detailed definition. The criteria for recognition as an electoral trust are set out in CBDT guidelines, but statutory clarity could be enhanced by incorporating these requirements....