Wednesday, April 14, 2021
Home Specials OpIndia Explains Political parties and 'income tax' on donations – all you need to know

Political parties and ‘income tax’ on donations – all you need to know

Elections and the conduct of the legislature in India is governed under the Representation of the People Act, 1951, which empowers the Election Commission of India (ECI) to form rules for elections and political parties.

As per current rules, political parties in India are barred from undertaking any commercial activity and thus they are not deemed to be engaged in acts that make them liable to pay any income tax. But it doesn’t mean that parties are not under the radar of the tax authorities.

Yesterday, this misleading tweet by news agency Reuters created a lot of confusion on social media (the agency then tweeted a rejoinder to make things clearer):

To help you understand things better, here are a list of issues – in FAQs format- that you should know:

Q1. Were political parties always exempted from paying income tax?

Ans: Yes. Under Section 13A of the IT Act, political parties are exempt from paying Income Tax. But they are required to file their Income Tax Returns (ITR). This is a very old provision.

Q2. So we can know from where their income i.e. their donations are coming from?

Ans: Technically yes, but there is one loophole.

Q3. What is that loophole?

Ans: Donations below 20,000 rupees are not required to be reported to the ECI (Sec 29C, sub-section 3) but they have to be reported in the ITR. Political parties are essentially not required to disclose details of those donating below 20,000 rupees.

Q4. How is it misused?

Ans: Simple study of IT returns of any political party will show that maximum donations to them are from such ‘unknown’ sources.

Q5. Does it mean that Income Tax Department cannot scrutinise political parties?

Ans: Not really. Parties are exempted from income tax, but they still have to: a. maintain books of accounts, b. file returns, c. be open to scrutiny, even raids, etc.

Q6. Have political parties ever been raided or questioned over their source of funds?

Ans: I haven’t come across cases of raids. However, their returns are scrutinised just like any other assesses, and Income Tax department takes note of complaints against them too. As recent as last year, Congress and AAP had received notices from the department. Question here is how far the department will go in pursuing such cases.

Q7. Can I access the ITR of these political parties? If yes, how?

Ans: Although most parties are disputing the ruling, they were deemed to be under the RTI act by the CIC. Thus one could file an RTI and get information like their balance sheet, income statement and even the donors list (information in donors list can be incomplete based on record keeping of the party and because of that aforementioned loophole). However, since the matter is currently disputed and sub-judice, right now you may not get any response.

Q8. Can donation details given in ITR be different number from donation report submitted to the ECI?

Ans: Donations given in ITR is the sum of total donations received (including below the 20k threshold) by the party, while the donations report submitted to the EC are those of above Rs. 20,000, listing the details of the donors, their addresses and their mode of payments; so information contained in both the documents will be different.

Q9. Can a Party convert black money to white?

Ans: Technically, yes. Parties can take money and show them as donations below 20,000 rupees (making backdated entries showing that donations were taken before demonetisation was announced) and try to convert it into white money for a ‘cut’. But do remember that they have to furnish expenditure details to the ECI too, thus there is always a way to catch this scam. Strong political willpower will be needed to nail such parties.

Q10. Do you think Narendra Modi will do it?

Ans: I hope he does! I am sure he knows about this possibility. Wasn’t that the reason he asked all his MPs to submit their bank statements by 31st December? I hope he will check bank statements of not only the BJP but of all political parties.

Q11. Are you sure political parties are indulging in such scam?

Ans: Believe me it’s not that easy. If caught, it can jeopardise the whole party and their recognition can be cancelled by the ECI. Surely a party should think twice before indulging in such deeds.

Q12. What should be the way forward?

Ans: There should be more transparency in political funding. Donations below 20k should have the same rules as applicable to donations above 20k i.e. Name, Address, and PAN details of donors must be recorded, and finally the ITR details should be made public. This will need an amendment to the Representation of Peoples act and the IT act.

  Support Us  

Whether NDTV or 'The Wire', they never have to worry about funds. In name of saving democracy, they get money from various sources. We need your support to fight them. Please contribute whatever you can afford

Ashutosh Muglikar
Articles on Corporate Laws, Policy, Economics and Politics. Maverick. Lover of Ideas. Slayer of Hoaxes.

Related Articles

Trending now

Mayor Sadiq Khan vows to bring the Indian Premier League to London to boost his reelection chances: Details

London mayor Sadiq Khan promises to bring the Indian Premier League to the British capital as part of his reelection campaign.

BBC Urdu documentary reveals how state-sanctioned Pakistani textbooks demonize Hindus

BBC Urdu published a video on YouTube highlighting the prejudice against Hindus that textbooks in Pakistan advocate.

Constant ‘beheading’ threats by Islamists: Hindus come out in large numbers to support Yati Narsinghanand Saraswati, demand security for him

Enraged by the Muslim politicians and religious groups openly issuing death threats, Hindus come together to support Yati Narsinghanand Saraswati.

Here’s why lockdown is no longer an option and imposing another at this point makes no sense at all

Not imposing a lockdown may be a bad choice but imposing it to combat Covid-19 will prove to be infinitely worse.

Japan to release treated water from Fukushima nuclear plant into the ocean: USA, IAEA support, China condemns

Japan has long delayed the decision to dispose of the wastewater from the Fukushima Daiichi nuclear plant over criticisms and safety concerns.

The direct fall-out of not implementing farm laws: Punjab Farmers say Arhtiyas asking for signed blank cheques for helping in crop procurement

Farmers across Punjab are being told by their arhtiyas to furnish "signed blank cheques" if they want to get their produce auctioned in the mandis

Recently Popular

Pfizer wanted Brazil, Argentina to put military bases, Federal reserve as collateral: Why India kept Pfizer away and how the usual suspects are wrong

Pfizer has been accused of countries in Latin America of pledging their sovereign assets, military bases and financial reserves to protect itself from any adverse fallout of the vaccine

OpIndia Exclusive: Tata Communications suffers data leak, hackers claim to have sold access to company’s servers, over 50GB data still up for sale

As per two posts by hackers on a hackers' forum, they have gained access to Tata Communications servers and sold them.

India has to become a ‘Hindu Rashtra’, or it will be turned into an Islamic nation by 2030: Kerala MLA

"Can we let this nation (go) to any particular community? This needs to be discussed. Somebody has to speak up," PC George emphasised.

What happened in Chhabra after Hindu man was stabbed by Muslim men: Call for peace, attack on a Hindu the next day and more

On April 12, the administration extended curfew for one more day at Chhabra, Baran district in Rajasthan after the communal riot

Attempts to draw false equivalence between the Kumbh Mela and Tablighi Jamaat congregation do not make sense: Here’s why

Attempts are being made to draw false equivalences between the Kumbh Mela and the Tablighi Jamaat congregation last year.

The direct fall-out of not implementing farm laws: Punjab Farmers say Arhtiyas asking for signed blank cheques for helping in crop procurement

Farmers across Punjab are being told by their arhtiyas to furnish "signed blank cheques" if they want to get their produce auctioned in the mandis
- Advertisement -

 

Connect with us

254,077FansLike
528,919FollowersFollow
24,200SubscribersSubscribe