Advertisement to Political Parties [Section 37(2B)] – Applicability to “Profits and Gains of Business or Profession”

Business and Profession, Tax Ready Reckoner

Table of Contents

1. Key Provision

Section 37(2B)of the Income Tax Act, 1961, disallows any deduction for expenses incurred on advertisements in political party publications (e.g., souvenirs, brochures, or event sponsorships).
This applies to businesses and professionals claiming expenses under “Profits and Gains of Business or Profession” (PGBP).

2. Conditions for Disallowance

Nature of Expense: Payments made to political parties or their affiliatesfor advertisements.
Form of Payment: Cash or non-cash (both are disallowed).
No Exceptions: Even if the expense is genuine and business-related, it cannotbe claimed as a deduction.

3. Examples of Disallowed Expenses

SCENARIO	TAX TREATMENT
Advertisement in a political party’s souvenir	100% disallowed
Sponsorship for a political event	100% disallowed
Donation to a political party (even if disguised as ad expense)	Disallowed + may attract scrutiny

4. Rationale Behind the Rule

Prevents Indirect Political Funding: Stops businesses from routing political donations as “advertising expenses.”
Ensures Transparency: Aligns with electoral funding regulations.

5. Penalty Risks

Disallowance + Scrutiny: If detected, the expense is added back to taxable income.
Concealment Penalty: 100–300% of tax evaded if deliberately hidden.