Income Tax Department Issues Notices to Taxpayers for Donations to Unrecognized Political Parties: Suspected Tax Evasion Under Scrutiny.
The Income Tax Department has issued notices to numerous taxpayers who have contributed to political parties that are registered but not recognized by the Election Commission. These notices, pertaining to donations made during the financial years 2020-21 and 2021-22, aim to investigate potential tax evasion and money laundering through such payments, according to informed sources.
Evidence of these notices has been observed under Section 80GGC of the Income Tax Act.
A senior official informed ET that approximately 5,000 notices have been dispatched for the aforementioned financial years, with plans to send out more in the near future. The donations in question were directed towards around 20 registered yet unrecognized political parties, as per the official.
Under the current tax laws, taxpayers can claim a 100% deduction for donations made to either a registered electoral trust or political party, with the caveat that the total deduction does not exceed the individual’s total income.
The discrepancy arises from instances where the donated amounts do not align with the declared income, raising suspicions that these parties may have laundered some portion of the funds in cash. “Notices have been sent in cases where the donations were disproportionate to the income,” stated a senior official. Some taxpayers have purportedly allocated up to 80% of their income to a political entity that lacks proper registration.
Political parties are designated as unrecognized if they have not contested elections or failed to secure a qualifying vote percentage threshold in assembly or national elections.
Similar notices were dispatched last year, resulting in revised returns accompanied by penalties and interest.
Authorities anticipate that evading taxes through such means will become more challenging from the financial year 2022-23 onwards due to stricter compliance regulations. In 2022, the Central Board of Direct Taxes (CBDT) introduced amendments to ITR-7, which is filed by political parties and charitable trusts. Starting this year, entities with income exceeding ₹50 lakh are required to furnish additional details regarding contributions made to political parties.