Individual taxpayers and Hindu Undivided Families (HUFs) have emerged as the primary beneficiaries of tax deductions claimed on political donations, securing the most substantial tax benefits during the financial year 2024-25. According to recent data from the Union Budget 2026-27, these taxpayers claimed deductions amounting to Rs 1,995.04 crore under Section 80GGC of the Income Tax Act, highlighting a significant shift in poll funding patterns.
Revenue Impact and Year-on-Year Growth
The projected revenue impact of tax deductions claimed on political donations by individual, corporate, and non-corporate taxpayers is set to reach Rs 3,126.12 crore in 2024-25. This marks a notable increase of 13% from the previous fiscal year, where the figure stood at Rs 2,766.47 crore. The surge is particularly evident in the contributions made during a year that witnessed general elections to the Lok Sabha, underscoring heightened political engagement among taxpayers.
Individual and HUF Taxpayers Take the Lead
Since fiscal 2021-22, individual and HUF taxpayers have consistently outpaced corporate entities in claiming deductions for political contributions. In 2024-25, their claimed benefits rose to Rs 1,995.04 crore, up from Rs 1,765.52 crore in 2023-24. This trend reflects a growing inclination among individuals to support political parties while availing tax incentives.
An analysis of budget documents reveals a steady rise in the revenue impact of deductions claimed by individual taxpayers over the years. Post-Covid, this impact saw a sharp increase, jumping from Rs 544.53 crore in 2019-20 to Rs 740.03 crore in 2020-21, and further to Rs 1,650.86 crore in 2021-22. It peaked at Rs 2,275.85 crore in 2022-23 before stabilizing in subsequent years.
Corporate and Non-Corporate Contributions
Corporate taxpayers are projected to claim deductions worth Rs 860.86 crore in 2024-25, up from Rs 761.82 crore in the previous fiscal. Non-corporate taxpayers, including firms, Associations of Persons (AOPs), and Bodies of Individuals (BOIs), also contribute to the overall revenue impact, which combines to form the total projected figure of Rs 3,126.12 crore.
Legal Framework and Deduction Provisions
Under the Income Tax Act, 1961, various taxpayer categories are permitted to claim deductions for donations made to political parties. These include:
- Indian companies under Section 80GGB
- Individuals and HUFs under Section 80GGC
- Non-corporate entities such as firms, AOPs, and BOIs also under Section 80GGC
Section 80GGB specifically allows corporate taxpayers to deduct contributions made to political parties or electoral trusts, provided they are not in cash. Similarly, Section 80GGC extends this benefit to individuals, HUFs, and non-corporate taxpayers, with the condition that donations must be made through cheques, account transfers, or electoral bonds.
The Act defines a political party as one registered under Section 29A of the Representation of the People Act, 1951, ensuring that deductions are claimed only for contributions to recognized entities.
Implications for Tax Policy and Political Funding
The rising trend in deductions claimed by individual taxpayers signals a broader shift in political funding dynamics. As more individuals leverage tax benefits to support political parties, it raises important questions about transparency and the role of tax incentives in shaping electoral finance.
With the general elections influencing donation patterns, the data from 2024-25 serves as a critical indicator of how tax policies intersect with political participation. Stakeholders, including policymakers and tax authorities, will likely monitor these trends to assess the long-term revenue impacts and potential reforms in donation-related deductions.
