The revenue impact of tax deductions availed by individual taxpayers for donations to political parties has surged post-Covid-19. In fact, during the two financial years through 2023-24, just ahead of the Lok Sabha elections, individual taxpayers claimed higher tax benefits than corporate taxpayers for contributions made to political parties.
The Statement of Revenue Impact of Tax Incentives under the Central Tax System in Budget 2025-26 shows that individual/HUF taxpayers claimed tax benefits worth Rs 2,275.85 crore for deductions on account of contributions to political parties under Section 80GGC of the Income tax Act ( I-T Act) during FY23. This figure is projected to grow by 12.36 per cent to 2,557.15 in FY24, according to the Budget document.
The revenue impact of deductions claimed by individual taxpayers was higher compared to corporate taxpayers. In FY23 and FY24, the revenue impact of deduction claimed by corporate taxpayers for contributions to political parties was recorded at Rs 514.40 crore and Rs 577.98 crore (projected), respectively. In the FY18 too, the revenue impact of deduction claimed by individual taxpayers (Rs 169.56 crore) exceeded corporate taxpayers’ claims (Rs 133.36 crore).
An analysis of previous years’ Budget documents shows that the revenue impact of deductions claimed by taxpayers for political donations has been on the rise over the years. However, this trend surged post the Covid-19 pandemic, as the figure increased from Rs 544.53 crore in FY20 to Rs 740.03 crore in FY21 and Rs 1,650.86 crore in FY22.
The combined revenue impact of tax deductions availed by corporates, firms and individuals on account of donations to political parties stood at Rs 2,905.96 crore in FY23, which is projected to reach Rs 3,265.14 crore in FY24. However, it is lower than the Rs 3,516.47 crore impact seen in FY22. The total revenue impact of tax concessions availed by these three categories of taxpayers—individual, corporates and firms—on political donations in 10 years since FY15 is an estimated Rs 14,473.75 crore.
Under the Income tax Act, 1961, taxpayers, including Indian companies, firms, Association of Persons (AOPs), Body of Individuals (BOIs), individuals or Hindu Undivided Families (HUFs), are allowed to claim deductions in respect to donations made by them to political parties. These include donations made through cheques, account transfers or electoral bonds. As per Section 80GGB of the I-T Act, 1961 corporate taxpayers can claim deductions on account of donations made to political parties.
Section 80GGB of the I-T Act states that “In computing the total income of an assessee, being an Indian company, there shall be deducted any sum contributed by it, in the previous year to any political party or an electoral trust.” However, it does not allow deductions “in respect of any sum contributed by way of cash”.
Similar benefit is available to individual taxpayers under Section 80GGC. “In computing the total income of an assessee, being any person, except local authority and every artificial juridical person wholly or partly funded by the Government, there shall be deducted any amount of contribution made by him, in the previous year, to a political party or an electoral trust…,” Section 80GGC of the Income Tax Act states.
Like individuals, non-corporate taxpayers (firms/AOPs/BoIs) are also allowed to claim deduction under Section 80GGC in respect of any sum contributed by them to political parties by way of cash.
For the purpose of the Section 80GGB and 80GGC, the Act defines the term “political party” as “a political party registered under section 29A of the Representation of the People Act, 1951”.
