Finance Minister P Chidambaram's Budget proposals yesterday had an important change in the law on the income tax deduction for political funding.
The Finance Bill, 2013, has proposed to disallow deduction of any sum contributed through cash in computation of income for tax purposes from April 1, 2014.
The move, along with the one per cent TDS on property transactions above Rs 50 lakh, is being seen as a step to counter movement of unaccounted income.
Currently, under the provisions of Section 80GGB of the Income Tax Act, any sum contributed by an Indian company to any political party or an electoral trust in the previous year is allowed as deduction in computing the total income of the company.
A similar deduction is available to an individual, other than a local authority and an artificial juridical person under section 80GGC. There is no specific mode provided for making contributions to political parties.
"With a view to discourage cash payments by the contributors, it is proposed to amend the provisions of aforesaid sections, so as to provide that no deduction shall be allowed under section 80GGB and 80GGC in respect of any sum contributed by way of cash," said the memorandum explaining the provisions in the Finance Bill, 2013.
An internal paper of the Central Board of Direct Taxes had said the Election Commission of India had expressed serious concern about the crores in cash being deposited with some political parties, and regarding the manner of spending. It had also pitched for fixing a limit beyond which all contributions to political parties should be made through account payee cheques only.