Prashant Kishore
The results of Bihar elections were declared on Friday. NDA got a huge majority. But in this election, a new party and a new leader created such a stir that it once seemed that this time many old camps and stalwarts may be uprooted from the political ground. We are talking about Prashant Kishore and his party Jan Suraj. He may not have got any seat, but he made everyone work hard during the elections.
According to a report in AltNews, his party Jan Suraj reportedly spent more money on digital advertisements than Congress, JD(U) and RJD combined, while BJP spent the most.
On several forums, Kishor publicly said that he has donated around Rs 98.76 crore of his personal earnings in the last three years to Jan Suraj, which he founded. All political parties receive donations on the basis of their popularity and ideology.
For example, according to data from the Association for Democratic Reforms (ADR), the BJP reportedly received the highest donation of Rs 2,243 crore from 8,353 donors across India in 2023-24.
Although Kishor paid income tax of Rs 20 crore on his income (Rs 241 crore between 2021-2024), is he entitled to claim tax deduction on the donation of Rs 98.76 crore made to Jan Suraj. Let us try to understand this…
Are donations given to political parties taxable?
Political donations are generally exempt from income tax and are allowed as deductions under personal income. However, under the new tax regime, there is no such deduction on donations made to political parties. Mumbai-based chartered accountant Chirag Chauhan says in a Mint report that donations given to political parties are completely tax free, but not under the new tax regime.
Delhi-based chartered accountant Pratibha Goyal, who is a partner at PD Gupta & Company, says in the media report that deduction is allowed under the Income Tax Act on actual donations made to political parties. However, if you are using this method for tax evasion, then it is not allowed.
However, the income from which the charity is donated must be from obvious sources. Otherwise, it may be treated as unexplained expenditure under section 69C and taxed accordingly. OP Yadav, tax evangelist of Prosper.io and former principal income tax commissioner, says in a Mint report that political donations made from properly accounted income, whether tax-paid or tax-exempt, are not taxable.
But if such contributions come from unexplained sources, they may be treated as unexplained expenditure under section 69C and subject to 60 per cent tax, plus surcharge and cess.
old tax system vs new tax system
Under the old tax regime, donors could claim 100 per cent deduction on donations made to political parties. This deduction is for both individuals and companies under Section 80GGC and Section 80GGB of the Income Tax (Income Tax) Act. These deductions (old tax regime) are applicable on any donation made to any registered political party, provided the donation is made in a cashless manner.
These deductions are not allowed under the new tax regime and cannot be claimed on taxable income at special rates. According to OP Yadav, under the old tax regime, non-cash contributions made to political parties or electoral trusts are eligible for deduction under sections 80GGB and 80GGC, provided the aggregate limit of Chapter VI-A does not exceed the gross total income.
This deduction is not available to companies taxable under the new tax regime and under sections 115BA, 115BAA, and 115BAB. Additionally, these deductions cannot be claimed on income taxable at special rates, such as short term capital gains under section 111A or long term capital gains under sections 112 and 112A.