SCHEDULES VIII TO X — POLITICAL PARTY / SECTOR-SPECIFIC RESERVES

SCHEDULE VIII — Political Parties and Electoral Trusts

Schedule VIII — Exempt Income of Political Parties and Electoral Trusts

SCHEDULE TEXT

[See section 12]

Schedule VIII is the operative Schedule for political party / electoral trust exempt income. It contains:

Part A — Political Party. The income chargeable under heads 'Income from house property', 'Income from other sources', 'Capital gains', and any income by way of voluntary contributions shall not be included in the total income, subject to four conditions: (a) the political party keeps and maintains books of account; (b) the names and addresses of voluntary contributors of more than Rs 20,000 are recorded (modified post-FA 2017 to Rs 2,000 in cash, with electronic / electoral-bond contributions exempt from naming — though electoral bond regime under judicial review post-2024); (c) accounts audited by a CA; (d) report under section 29C of the Representation of the People Act, 1951 to the Election Commission within prescribed time. Plus FA 2022 condition: return of income filed within s. 263(1) due date.

Part B — Electoral Trust. Voluntary contributions received by an electoral trust shall not be included in the total income, subject to: (a) the trust distributes 95% of the contributions (plus surplus brought forward) to a registered political party in the year of receipt; (b) the trust functions as per Rule 17CA / corresponding Rule of the 2026 Rules.

OLD ACT (1961) CORRESPONDENCE

Sections 13A and 13B of the 1961 Act. Section 13A — Political party regime. Section 13B — Electoral trust regime.

COMMENTARY

Schedule VIII consolidates sections 13A and 13B of the 1961 Act into a single Schedule with two parts. The substantive content is preserved unchanged.

Political party regime (Part A). The four-fold condition test (books / donor records / audit / RPA report) carries forward verbatim. Post-FA 2017 — cash contributions above Rs 2,000 are not eligible; only banking-channel / electronic-mode / electoral-bond contributions count for exemption purposes. Post-FA 2022 — timely return-filing under s. 263(1) is a condition; belated returns forfeit exemption.

Electoral bond regime (post-2024). The Supreme Court's decision in Association for Democratic Reforms v. Union of India (2024) declared electoral bonds unconstitutional and ordered SBI / ECI disclosure of all bond purchasers and recipients. Going forward, the electoral bond carve-out from donor-naming requirement is effectively unavailable. Schedule VIII (as amended by FA 2026) reflects this position.

Electoral trust regime (Part B). The 95% pass-through is the operative test: an electoral trust must distribute at least 95% of the aggregate voluntary contributions (plus surplus brought forward) to registered political parties in the year of receipt. The remaining 5% may be retained for administrative expenses. Failure to meet the 95% threshold disqualifies the trust for the entire year. Practitioner workflow: monthly tracking of contributions received vs distributions made; pre-year-end calibration to ensure 95% distribution.

Continuity of jurisprudence. Common Cause v. Union of India (1996) 222 ITR 260 (SC) — political parties not maintaining books not entitled to exemption; ITAT Delhi decisions on RPA report-filing as condition precedent — all continue to apply.

Practitioner takeaways. (i) For political parties: 4-condition + return-filing checklist; pay particular attention to donor-name recording for >Rs 2,000 contributions. (ii) For electoral trusts: monitor 95% pass-through monthly; engage with 12 months notice / quarterly statement under Rule 17CA. (iii) For corporate / individual donors: deduction under s. 132 (formerly s. 80GGB / 80GGC) only for banking-channel contributions; track CBDT notification of registered political parties. (iv) Watch for legislative response to the 2024 SC ruling; Schedule VIII may be re-amended.

SCHEDULE IX — Deduction for Tea, Coffee and Rubber Development Account

Schedule IX — Tea / Coffee / Rubber Development Account

SCHEDULE TEXT

[See section 48]

Schedule IX implements the deduction under section 48 of the new Act (formerly s. 33AB) for assessees engaged in the business of growing and manufacturing tea, coffee or rubber. Eligible assessees may claim deduction for amounts deposited in a Tea / Coffee / Rubber Development Account with NABARD or specified bank, subject to:

(i) Deposit must be made within 6 months from the end of the tax year OR before due date of return-filing — whichever earlier;

(ii) Deduction limited to: (a) the actual amount deposited or (b) 40% of profits and gains from the eligible business — whichever is less;

(iii) Withdrawal allowed only for purposes notified by Tea / Coffee / Rubber Board (replanting / development / construction etc.);

(iv) Failure to use within stipulated period — withdrawn amount taxed as income;

(v) Audit certification mandatory in prescribed Form.

OLD ACT (1961) CORRESPONDENCE

Section 33AB of the 1961 Act — Tea / Coffee / Rubber Development Account. Originally inserted by FA 1985. The 40%-of-profits cap and NABARD-account requirement are preserved. Form 3AC / 3AD audit certification.

COMMENTARY

Schedule IX implements the long-standing tax incentive for the plantation industry. The deduction encourages re-investment of plantation profits into long-cycle crops (tea / coffee / rubber require 5-7 years from planting to first commercial yield). The 40%-of-profits cap is the operative limit; combined with the 6-month-or-due-date deposit deadline, plantation companies must time their deposits carefully.

Eligibility test. (a) Assessee must be carrying on the business of growing AND manufacturing — pure trading / wholesaler is not eligible. (b) Tea / coffee / rubber — exhaustive list; other plantation crops (cardamom / pepper) are not covered. (c) Composite businesses (plantation + others) — segregation of profits required; only plantation-portion qualifies.

Withdrawal and consequences. Deposits can be withdrawn for purposes notified by the respective Board (Tea Board / Coffee Board / Rubber Board) — typically capital expenditure on replanting, replacement, expansion, processing factory, irrigation. Failure to use within the prescribed period (typically 5 years from withdrawal) — the unused amount is added back as income.

Continuity of jurisprudence. CIT v. United Nilgiri Tea Estates Co. Ltd. (1991) 191 ITR 25 (Mad.) — composite business income segregation. CIT v. Tata Tea Ltd. (2018) 401 ITR 527 (Cal.) — eligibility tests. Both continue to apply.

Practitioner takeaway. (i) For plantation clients: file Form 3AC audit certificate (now expected as Form 8 of Appendix III); quarterly review of NABARD account balance; align withdrawals with Board-notified purposes. (ii) For composite businesses: maintain separate books / segment reports for plantation income. (iii) Coordinate with Schedule X (Site Restoration Fund) — similar architecture for petroleum sector. (iv) Continued sunset risk: this incentive has periodically been reviewed for sunset; track Finance Act amendments.

SCHEDULE X — Deduction for Site Restoration Fund

Schedule X — Site Restoration Fund (Petroleum / Oil Exploration)

SCHEDULE TEXT

[See section 49]

Schedule X implements the deduction under section 49 of the new Act (formerly s. 33ABA) for assessees engaged in petroleum / oil exploration / mining. Eligible assessees may claim deduction for amounts deposited in a Site Restoration Fund with SBI or specified bank, subject to:

(i) Deposit must be made before end of the tax year;

(ii) Deduction limited to: (a) actual amount deposited or (b) 20% of profits from the eligible business — whichever is less;

(iii) Withdrawal only for site restoration purposes — environmental / safety obligations under the Production Sharing Contract or applicable law;

(iv) Failure to use within prescribed period — added back as income;

(v) Audit certification mandatory in prescribed Form.

OLD ACT (1961) CORRESPONDENCE

Section 33ABA of the 1961 Act — Site Restoration Fund — inserted by FA 1999.

COMMENTARY

Schedule X is the petroleum-sector counterpart to Schedule IX. It addresses the unique tax / accounting challenge in oil and gas exploration: at the end of the field's productive life, the operator is contractually / legally bound to restore the site (decommission wells, cap reservoirs, environmental remediation). These obligations can be substantial — running to hundreds of crores for major fields. Without a tax-deductible reserve mechanism, the operator would have to absorb the entire cost in the year of decommissioning, which may have low / nil profit. The Site Restoration Fund allows pre-funding through a deductible deposit with SBI.

Eligibility. (a) Petroleum / natural gas / coal-bed methane exploration / production. (b) Operating under a Production Sharing Contract (PSC) with the Government, or under a similar approved arrangement. (c) Site restoration obligation must be a contractual / legal mandate.

20% cap vs 40% cap. Schedule X's 20% cap is lower than Schedule IX's 40% (tea / coffee / rubber). The lower cap reflects the larger profit base of petroleum operations — a 20% cap on petroleum profits often translates to higher absolute deductions than 40% on plantation profits.

Practitioner takeaway. (i) For petroleum clients: integrate with PSC obligations; coordinate with auditor's site-restoration provisions in financial statements (deferred / present-value). (ii) Maintain SBI account; quarterly reconciliation. (iii) For listed petroleum companies: align book provisioning under Ind AS 37 (provisions for decommissioning) with tax deduction under Schedule X — timing differences will arise as Ind AS provision is on present-value basis whereas Schedule X is on cash deposit basis.

Schedules VIII to X — Consolidated At-a-Glance

Practitioner notes

• Schedule VIII: 4-condition + timely-return-filing for political party; 95% pass-through monitoring for electoral trust.
• Schedule VIII: track Supreme Court / legislative response to electoral bond ruling.
• Schedule IX: 40% cap; deposit by 6-months / due-date; Board-notified withdrawal purposes only.
• Schedule X: 20% cap; tighter deposit deadline (year-end); align with Ind AS 37 provision.
• Both Schedules IX-X: failure-to-use forfeiture risk; track withdrawal / utilisation timeline.

— End of Schedules Volume 3 —