Understanding Section 80GGC and Recent Income Tax Intimations

Introduction Section 80GGC of the Income Tax Act, 1961, provides a tax deduction to individuals who make donations to political parties or electoral trusts. However, many taxpayers who claimed this deduction in their Income Tax Returns (ITRs) for the assessment year 2023-24 are now receiving intimations from the Income Tax Department questioning the legitimacy of their claims.

In this blog, we will explore the provisions of Section 80GGC, eligibility criteria, and why the Income Tax Department is scrutinizing these claims.

What is Section 80GGC? Section 80GGC allows individuals to claim a 100% deduction for donations made to a political party registered under Section 29A of the Representation of the People Act, 1951 or an electoral trust. Unlike other deductions, there is no upper limit on the amount that can be claimed under this section. However, the payment must be made via a banking channel—cash donations are not eligible for deduction.

Who Can Claim This Deduction?

• Only individual taxpayers can claim this deduction.
• Companies, Hindu Undivided Families (HUFs), and other entities are not eligible (they can claim deduction under Section 80GGB instead).
• The contribution must be made through cheque, draft, electronic transfer, or any other digital mode.

Why Are Taxpayers Receiving Intimations for Section 80GGC? The Income Tax Department has started issuing notices and intimations to taxpayers who claimed deductions under Section 80GGC. The reasons include:

1. Mismatch in AIS/26AS Data: The Annual Information Statement (AIS) and Form 26AS track financial transactions. If the political contribution is not reflected in these records, the claim may be questioned.
2. Lack of Proper Documentation: Taxpayers need to provide valid receipts from political parties or electoral trusts to justify their claim. Many taxpayers fail to retain these documents.
3. Suspicious or High-Value Claims: Some individuals have claimed large deductions under Section 80GGC, which has triggered scrutiny under risk assessment mechanisms.
4. Cash Contributions or Invalid Modes of Payment: If the payment was made in cash or via an untraceable mode, the deduction is not allowed and may result in disallowance.

What Should You Do If You Receive an Intimation? If you receive a notice or intimation under Section 143(1) of the Income Tax Act regarding your 80GGC claim, follow these steps:

1. Verify Your Claim: Check your ITR details and ensure that you actually made the donation via a valid mode of payment.
2. Check AIS & 26AS: Confirm whether the donation is recorded in your Annual Information Statement (AIS) and Form 26AS.
3. Submit Proof of Payment: If required, provide donation receipts issued by the political party or electoral trust.
4. Respond to the Notice Promptly: If an explanation is required, respond within the stipulated time through the e-filing portal.
5. Consult a Tax Expert: If the claim is disallowed or further clarification is needed, consult a tax professional for guidance.

Conclusion While Section 80GGC provides a great tax-saving opportunity for individuals supporting political parties, it has also come under increased scrutiny due to possible misuse. Taxpayers must ensure that they have genuine contributions, proper documentation, and compliance with AIS records to avoid issues with the Income Tax Department.

If you have claimed a deduction under Section 80GGC and received an intimation, review your claim carefully and respond appropriately to avoid disallowance or further scrutiny.

Possible Solutions:

1. Revise the ITR (if original return was filed on time)
   • If you filed your ITR before the due date (31st July 2023), you can file a Revised Return (ITR-U/s 139(5)) and remove the incorrect 80GGC claim.
   • Login to the Income Tax e-filing portal → Go to "e-File" → "Income Tax Return" → Select "Revised Return" and make the necessary corrections.
   • Ensure that the return is verified after submission.
2. Respond to the Intimation under Section 143(1)
   • If you received an intimation stating that your 80GGC claim is not allowed, but no additional tax is demanded, you may not need to take further action.
   • If the IT department has raised a demand, you need to file a rectification request (refer to step 3).
3. File a Rectification Request (If 143(1) Intimation Shows Discrepancy)
   • If your return is already processed and shows an incorrect deduction, you can file a rectification request under Section 154 to correct it.
   • Login to the Income Tax e-filing portal → Select "Services" → "Rectification" → Request for "Reprocess the Return" or modify the deduction.
4. Ignore If No Demand or Additional Tax
   • If your ITR has been processed and there is no additional tax liability or demand raised by the department, you do not need to take any action. The department may disallow the deduction on its own and process the return accordingly.

Final Suggestion:

Since you do not have any additional tax liability, it’s best to check the intimation u/s 143(1) received from the IT Department. If there is no tax due, you may wait for the department to adjust the return automatically or file a rectification request under Section 154 to remove the incorrect 80GGC claim.