Taxation of Political Parties - Section 13A - Income Tax - Ready Reckoner - Income Tax

Taxation of Political Parties - Section 13A Special provision relating to incomes of political parties Section 13A Following incomes derived by political party are not to include in computing its Total Income: Income which is chargeable under the head 'income from house property' Income chargeable under the head 'income from other sources' Any income by way of voluntary contribution from any person Any income from capital gain Requisite Condition [First Proviso to Section 13A] (a) Such political party keeps and maintains such books of account and other documents as would enable the Assessing Officer to properly deduce its income therefrom; (b) In respect of each such voluntary contribution other than contribution by way of electoral bond in excess of ₹ 20,000 such political party keeps and maintains a record of such contribution and the name and address of the person who has made such contribution, (c) The accounts of such political party are audited by a Chartered Accountant. (d) No donation exceeding ₹2,000 is received by such political party otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through electoral bond. Meaning of Electoral Bond For the purposes of proviso of section 13A , electoral bond means a bond referred to in the Explanation to section 31(3) of the Reserve Bank of India Act, 1934. [ section 13A ] Electroal bond means a bond issued by any scheduled bank under the scheme as may be notified by the Central Government. [ Explanation to section 31(3) of RBI act, 1934] Electoral bond means a bond issued in the nature of promissory note which shall be a bearer banking instrument and shall not carry the name of the buyer or payee; [ Para 2 of Electoral Bond Scheme, 2018 ] Return of Income of Political Party Political Party required to furnish a return of income for the previous year in accordance with the provisions of Section 139(4B) on or before the due date under that section . If any profit is earned by a political party from running a canteen, it is not exempt as it is from commercial activity. Where a political party is unable to maintain its account for a reason whatsoever, or satisfy pre-conditions set out in proviso to section 13A, exemption cannot be granted to it from payment of tax. [ Commissioner of Income Tax, Delhi-XI Versus Janata Party - 2016 (3) TMI 878 - Delhi High Court ] Important Notes:- Contribution exceeding ₹ 20,000 should be by crossed cheque or draft If a person makes a donation to political party, then he shall get deduction under Section 80GGB / 80GGC from his total income of the donation so made. However, no deduction shall be disallowed under Section 80GGB / 80GGC in respect of donations made in cash. As per land mark Judgement of the case Association For Democratic Reforms Anr. Versus Union of India Ors. - 2024 (2) TMI 812 - Supreme Court (LB) para No. 79. I, therefore, respectfully agree and also conclude that: (i) the Scheme (i.e. Electoral Bond Scheme, 2018) is unconstitutional and is accordingly struck down; (ii) proviso to Section 29C(1) of the Representation of the People Act, Section 182(3) of the Companies Act, 2013 , and Section 13A(b) of the Income Tax Act, 1961 , as amended by the Finance Act, 2017 , are unconstitutional, and are struck down;. No exemption shall be available for a financial year, if political party failed to submit a report under section 29C(3) of the Representation of the People Act, 1951 for a financial year.