You’re perched at the top of the corporate ladder. You’ve accumulated enough wealth to last a couple of generations. So, what next? Well, if the public life isn’t your cup of tea, you may like to do the next best thing.
Donate to a political party that fits in with your ideology, to give Indian democracy a leg-up.
Funding a political party may have been a murky, under-the-table affair until a few years ago. But thanks to increasing public attention on how Indian elections are fought and funded, many newer and more transparent avenues have opened up for political donations.
With the Election Commission of India mandating a battery of disclosures from political parties, there are now multiple sources to research the finances, spending patterns and income sources of political parties.
If you’re keen to donate to a political party, here’s what you need to know.
Blanket breaks Indian income tax rules grant even more generous tax breaks on donations made to political parties than to charitable trusts or social causes.
Under Section 80GGC of the Income Tax Act, which governs political party contributions, an individual is entitled to claim a 100 per cent exemption from his gross total income on all the donations he makes in a financial year to a political party or an electoral trust. This blanket exemption is subject to a few caveats though.
Registered and active First, your donation should be made only to a registered political party within India. The term ‘registered’ here refers to a registration with the Election Commission of India (ECI) under Section 29A of the Representation of the People Act, 1951.
Any new political party that is keen to contest a Central or State election in India is expected to apply to the ECI to obtain a proper registration.
The Election Commission of India (ECI) regularly discloses, on its website, the list of registered parties. The latest such list is available at the link http://eci.nic.in/eci_main1/PolPar /ListofPolParties2015.aspx .
While the ECI’s lists over 1,700 registered parties in India in 2015, donors should look for not just registered parties, but ‘recognised’ ones while making their contribution, in order to get at the really active ones.
The ECI grants ‘recognition’ to a political party if it has been engaged in political activity for the last five years and has representatives in either Parliament or Legislative Assembly.
Alternatively, the party should have managed to garner at least 6 per cent of the total votes in the latest election.
The trust route If you don’t have any strong political leanings and would still like to make a political contribution, you could check out the electoral trust route.
Electoral trusts, which are set up by corporate groups or non-profit entities, accept and pool contributions from individuals, Hindu Undivided Families, companies or firms and then re-direct this to one or many different political parties.
Such trusts were first allowed in 2013 and a list of 18 CBDT-approved electoral trusts is available at this location on the ECI website http://eci.nic.in/eci_ main1/PolPar/List%20of%20 Electoral%20Trust_001.pdf. Electoral trusts are mandated by law to distribute 95 per cent of all the contributions they have received every financial year. This reduces the scope for leakages or diversions.
They are also required to maintain an audited record of all the contributions received and paid out, which is shared with the ECI every year.
These disclosures are thankfully put up in the public domain. Therefore, before choosing an electoral trust, you can check out the audited accounts of electoral trusts on the ECI website.
This can give you a look-in not only into the political parties that your trust contributes to, but also into the identity of other co-donors. Contributions to electoral trusts are subject to the very same restrictions as contributions to individual parties. (See box)
There’s a cap Assuming you comply with the above conditions, can you write out a big cheque for unlimited tax benefits? If you’re toying with that idea, do note that Section 80GGC falls under Chapter VIA of the Income tax Act. This imposes restrictions on the size of tax breaks you can claim in any assessment year.
For one, you cannot claim higher tax exemptions than the gross total income you have earned and disclosed for the year in your income tax returns.
Two, the exemption can be claimed only against the income earned from salary, business/profession or property and not against lottery winnings, speculative gains or any long or short term capital gains that you may have made during the year.
Not a secret
Do note that, no matter which route you take, any donation to a political party upwards of ₹20,000 cannot remain confidential. As per ECI rules, all political parties are required to submit a complete list of contributors to the ECI on all donations over ₹20,000. This is open to public and media scrutiny. Finally, if you’re quantitatively inclined, you may like to check out the finances of the parties you’re funding. There are quite a few online resources that help you dig deep into party finances.
You’ll find detailed disclosures on each party’s annual receipts at the ECI website.
You can also read through audited income and expenditure statement of each party at the same location.
But if you’re looking for non-financial data (such as the number of candidates with criminal cases) or the personal assets of the netas, you will find tabulated information on sites such as the Association of Democratic Reforms ( adrindia.org) .
Plastic please
The tax breaks under Section 80GGC are not available for those who hand out cash to party workers or turn up with a suitcase full of moolah at the party office.
With effect from assessment year 2014-15, in order to curb the laundering of black money in the guise of political contributions, cash donations to political parties have been made ineligible for tax breaks.
To claim tax breaks, you can write out a cheque, issue a demand draft, swipe your debit or credit card or use net banking. If your donation is over ₹20,000, the party will also demand details of your name, address and PAN.
Once done, demand an official receipt . It should be signed and stamped by the treasurer or authorised party official containing your name, address, PAN number as well as the party’s name, address, details of the contribution and its PAN and TAN numbers. Many big parties have enabled online donations which may carry rules of a minimum donation or yearly contribution.