Section 136 and section 137 of the Income-tax Act, 2025 (section 80GGB of the 1961 Act and section 80GGC of the 1961 Act) explained: this guide covers what Sections 136 and 137 means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
1. Political Donations: The Tax Framework After Electoral Bond Abolition
The landscape of political funding and its income tax treatment changed significantly in February 2024 when the Supreme Court struck down the Electoral Bond Scheme as unconstitutional. The two remaining mechanisms for political donations with income tax benefits are Section 136 (for Indian companies) and Section 137 (for individuals, HUFs, and other non-company entities). Both provide a 100% deduction, but both are restricted to old tax regime taxpayers and require non-cash payment. Understanding these provisions is important for businesses and individuals who make political contributions and wish to claim the tax benefit.
2. Section 136: Company Donations to Political Parties
Section 136 allows Indian companies to claim a 100% deduction for contributions made to:
- Political parties registered under Section 29A of the Representation of the People Act 1951
- Electoral trusts approved by the Central Board of Direct Taxes (CBDT)
- Only Indian companies: foreign companies operating in India cannot claim Section 136
- Non-cash only: the contribution must be through a bank account (cheque, RTGS, NEFT) -- even Rs 1 cash donation disqualifies the entire donation from Section 136
- Registered party only: donations to unregistered political groups, NGOs claiming political work, or associations without Section 29A registration do not qualify
- Not for Section 200 companies: companies that opted for 22% concessional rate gave up all Chapter VIII deductions including Section 136
Key conditions:
3. Companies Act: Additional Requirements for Political Donations
Beyond ITA 2025, the Companies Act 2013 imposes separate requirements on companies making political contributions:
- Company age requirement: the company must have been incorporated and in existence for at least 3 financial years before making its first political contribution
- New companies in their first 2-3 years: cannot make political contributions under the Companies Act (regardless of tax treatment)
- Loss-making companies: limited ability to make political contributions (generally should not contribute when in losses)
- Government companies (51%+ government shareholding): specifically PROHIBITED from making political contributions under Section 182 of the Companies Act
- Board resolution: a specific Board of Directors resolution approving the political contribution is required before each donation
- Disclosure: the amount, name of the political party, and date of donation must be disclosed in the company annual report and Board Report -- full public transparency
- Cap: no specific cap on the amount of political contribution (the earlier 7.5% of average net profit limit was removed)
4. Section 137: Individual and Non-Company Donations
Section 137 extends the 100% deduction to a broader set of taxpayers:
- Who can claim: any assessee other than a local authority and an artificial juridical person wholly or partly funded by the Government
- This includes: individual taxpayers, HUFs, partnership firms, LLPs, co-operative societies, trusts (non-artificial juridical persons)
- Deduction: 100% of the contribution
- Eligible recipients: same as Section 136 -- registered political parties (Section 29A) and approved electoral trusts
- Non-cash mandatory: same strict requirement as Section 136 -- no cash donations
- Old regime only
5. What Is a Registered Political Party?
Both Sections 136 and 137 require the recipient to be a political party registered under Section 29A of the Representation of the People Act 1951. The key elements of Section 29A registration:
- The party must have formally applied for registration to the Election Commission of India (ECI)
- ECI reviews and grants registration
- Both national parties (BJP, Congress, AAP, etc.) and state parties with ECI registration qualify
- Regional parties without formal ECI Section 29A registration: do NOT qualify for Sections 136/137 deduction even if they contest elections
- To verify: the ECI website publishes the list of recognised and registered political parties
6. Electoral Trusts: The Intermediary Route
CBDT-approved electoral trusts operate as intermediaries:
- Donors contribute to the electoral trust (Sections 136/137 deduction available)
- Electoral trust distributes received funds to registered political parties
- Electoral trust must distribute at least 95% of received contributions to political parties in the same financial year
- The remaining 5% can be retained for operational costs
- Electoral trust income: 100% of contributions received are deductible for the trust when distributed to parties
- Electoral trusts provide an organised, accountable channel for corporate political giving while maintaining some privacy of the donor-party routing (though the recent transparency requirements have reduced this)
7. Electoral Bonds: Abolished by Supreme Court
A major development in February 2024:
- The Supreme Court of India struck down the Electoral Bond Scheme as unconstitutional in its February 2024 judgment
- Grounds: the scheme violated voters right to information about political funding; anonymity of donors was not a constitutionally protected right that overrides transparency in democracy
- SBI was directed to return all undisputed bonds to the issuer and submit disclosure data to ECI
- Impact: the primary mechanism for large, anonymous political donations is now unavailable
- Going forward: direct party donations through cheque/bank transfer (with Sections 136/137 deduction) and electoral trust contributions are the remaining compliant mechanisms
8. Claiming the Deduction in ITR
Reporting requirements:
- Companies (ITR-6): report in dedicated Schedule section 136 with political party name, PAN (if available), amount, mode, and date
- Individuals and HUFs (ITR-2 or ITR-3): report in the deductions schedule against the political-contribution deduction (old 80GGC)
- Required details: name of political party, contribution amount, mode of payment (must show non-cash)
- AIS may show bank transactions that match political contributions -- reconcile ITR with AIS
9. Old Regime Restriction
Both Section 136 and Section 137 are Chapter VIII deductions available only under the old tax regime:
- Companies under Section 200: cannot claim Section 136
- Individuals under new tax regime: cannot claim Section 137
- For a company making significant political donations, the Section 136 deduction may justify remaining in the default regime rather than transitioning to Section 200
- Compute total Chapter VIII deductions (including political) before deciding on Section 200
10. Transparency and Compliance
Political donations have significant public interest implications. Best compliance practices:
- Maintain donation receipt from the registered political party
- Bank statement showing the transfer
- Board resolution (for companies)
- Political party acknowledgment/receipt
- For large donations: consult legal counsel on Companies Act Section 182 compliance
11. Why TaxClue
Political donation deductions require precise compliance -- recipient party registration verification, mode of payment documentation, Companies Act Board resolution, and correct ITR reporting. TaxClue ensures Sections 136 and 137 compliance for corporate and individual donors. Contact us under ITA 2025.