Political parties taxation AY 2026-27
Taxation of Political Parties and Electoral Trust
Introduction
This chapter explains the tax provisions and exemptions applicable to political parties and electoral trusts, under the Income-tax Act, 1961. It highlights the conditions and compliance requirements for claiming income-tax exemptions.
Exemption to Income of Political Parties [Section 13A]
Income of political parties from specified sources such as capital gains, income from house property, income from other sources, and voluntary contributions is exempt from tax subject to conditions:
- Maintenance of proper books of accounts and records, enabling the Assessing Officer to ascertain income.
- For voluntary contributions exceeding Rs. 20,000 (except electoral bonds), records must include donor name and address.
- Accounts audited by a qualified accountant.
- Donations exceeding Rs. 2,000 must be received by cheque, bank draft, electronic mode, or electoral bonds.
- Failure to submit reports as per Representation of the People Act results in loss of exemption for that financial year.
- The political party must file its return of income underSection 139(4B)by the due date.
‘Electoral Bond’ is defined as a financial instrument issued by Scheduled Commercial Banks authorized by the Central Government to enable donations to political parties without cash transactions.
Taxation of Electoral Trusts [Section 13B]
An electoral trust, approved by the CBDT under a scheme notified by the Central Government, receives voluntary contributions that are exempt if it distributes at least 95% of the aggregate donations received during the year to registered political parties.
- Interest income from investments of donations is taxable.
- Failure to meet the 95% distribution criterion results in total donations being taxable.
- Donations to electoral trusts qualify for deduction underSections 80GGBand 80GGC for the donors.