The Income Tax Department has recently taken action by sending notices to several taxpayers who made contributions to political parties that are registered, but not recognized by the Election Commission. These notices were issued to both individual taxpayers and corporates for donations made during the financial years 2021 and 2022. The purpose of these notices is to investigate whether such payments to lesser-known political parties were utilized for the purpose of evading taxes and laundering money.
Notices have been dispatched under Section 80GGC of the Income Tax Act, and a senior official has confirmed that approximately 5,000 notices have been sent for the aforementioned financial years, with more slated to be dispatched in the coming days. The donations under scrutiny were made to around 20 registered, yet unrecognised, political parties, according to the official.
Under the current tax regulations, taxpayers are eligible to claim a 100% deduction for donations to a registered electoral trust or political party, provided that the total deduction does not surpass the individual’s total income. However, discrepancies arise when the donations do not align with the declared income, leading to suspicions that these political parties may have reciprocated a portion of the amount in cash, as stated by the official.
It has come to light that in some instances, taxpayers have donated up to 80% of their income to a political party that is not properly registered. Furthermore, registered political parties are considered unrecognised if they have not contested elections or failed to secure a qualifying vote percentage threshold in assembly or national elections.
Last year, the department issued similar notices, resulting in revised returns with associated penalties and interest. Looking ahead, officials have indicated that evading tax through such means will become more challenging from the financial year 2023 onward, as compliance norms have been fortified. In 2022, the Central Board of Direct Taxes (CBDT) implemented changes in ITR-7, the form filed by political parties and charitable trusts, stipulating that those with an income exceeding ₹50 lakh must furnish additional details of contributions made to political parties.
These measures underscore a concerted effort by the Income Tax Department to uphold fiscal transparency and combat potential tax evasion practices associated with political contributions.