Income Tax Department Sends Notices to Taxpayers Regarding Contributions to Unrecognized Political Parties: Suspected Tax Evasion Under Investigation
The Income Tax Department has sent notices to several taxpayers who have made contributions to political parties registered but not recognized by the Election Commission. These notices, related to donations made in the financial years 2020-21 and 2021-22, are part of an investigation into possible tax evasion and money laundering associated with such payments, as per reliable sources.
These notices are grounded in the provisions of Section 80GGC of the Income Tax Act.
A senior official revealed to ET that around 5,000 notices have been sent for the mentioned financial years, and additional notices are set to be dispatched soon. These notices pertain to donations made to approximately 20 registered political parties that are not recognized by the Election Commission.
Under the existing tax regulations, individuals can claim a 100% deduction for donations made to a registered electoral trust or political party, provided that the total deduction does not surpass the individual’s total income.
The disparity arises when the donated amounts do not correlate with the declared income, prompting suspicions that these parties might have laundered a portion of the funds in cash. A senior official mentioned, “Notices have been sent in cases where the donations were disproportionate to the income.” Allegedly, some taxpayers have allocated up to 80% of their income to a political entity lacking proper registration.
Political parties receive the designation of “unrecognized” if they either haven’t participated in elections or have fallen short of securing a qualifying vote percentage threshold in assembly or national elections.
Similar notices were sent out last year, leading to revised returns accompanied by penalties and interest.
Authorities expect that evading taxes through such methods will become increasingly difficult from the financial year 2022-23 onwards, thanks to stricter compliance regulations. In 2022, the Central Board of Direct Taxes (CBDT) made amendments to ITR-7, the form filed by political parties and charitable trusts. Beginning this year, entities with income surpassing ₹50 lakh must provide additional details regarding contributions made to political parties.