Income Tax Department Increases Scrutiny of Political Donation Claims Under Section 80GGC

The Income Tax Department has recently initiated a more focused review of political donation claims under Section 80GGC of the Income Tax Act. This move aligns with the government’s push towards data-backed enforcement and enhanced transparency in political funding.

Income Tax Department Scrutiny: Section 80GGC Deduction Explained

Section 80GGC allows a 100% tax deduction for donations made by individuals (except companies) to political parties or electoral trusts registered under Section 29A of the Representation of the People Act, 1951.

However, only donations made through verifiable banking channels such as cheques, demand drafts, credit or debit cards, and online transfers are eligible. Contributions in cash or kind are specifically disqualified from receiving tax benefits.

Proof Required to Validate Claims

Taxpayers have reportedly received notices via SMS and email requesting them to furnish:

• Documentary proof of donations
   
• Bank statements
   
• Donation receipts
   
• Confirmation of the political party's registration status

Authorities have observed cases where deductions were claimed for contributions to unrecognised entities or made in non-permissible forms like cash, which violate tax norms.

Capping of Deduction Based on Gross Income

Section 80GGC also caps the eligible deduction to 10% of the taxpayer’s gross annual income. Any claimed amount above this ceiling is not admissible for tax relief.

Encouragement for Rectification and Updated Returns

Taxpayers receiving scrutiny notices are being urged to either:

• Respond with valid documents
   
• Or file an updated Income Tax Return (ITR) to rectify ineligible deductions

The facility to file updated ITRs within a 24-month window, as announced in the Union Budget 2025, offers individuals an opportunity to amend previous filings without immediate penal repercussions.

Read More: ITR Filing FY25: Know Key Changes in Form 16 Including Higher Standard Deduction and NPS Benefits!

Penalties for Fraudulent Deductions 

As per reports, Penal provisions under Sections 270A and 271AAC can result in 100% to 300% penalties for fraudulent deductions. 

• Pre-approval of political entities for tax-deductible donations
   
• Mandatory reporting to both the Central Board of Direct Taxes (CBDT) and Election Commission
   
• A central digital repository with donation and PAN details for real-time verification

Conclusion

The increased scrutiny on Section 80GGC claims by the Income Tax Department marks a shift towards more data-driven enforcement and accountability in political donations. While the provision offers 100% deduction, adherence to eligibility criteria, documentation, and donation channels is essential. Taxpayers have the option to rectify mistakes using the updated ITR window, which offers relief from severe penalties if actioned promptly.

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