The Income Tax Department has issued notices to several taxpayers who contributed donations to political parties registered but not recognized by the Election Commission, according to a report in the Economic Times. These notices, sent to individuals and corporates, pertain to donations made during FY21 and FY22. The objective is to investigate whether payments to lesser-known political parties were utilized for tax evasion and money laundering purposes, the report added quoting sources. ET is said to have reviewed some of the notices dispatched under Section 80GGC of the Income Tax Act.
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“So far, about 5,000 notices have been sent for FY21 and FY22. We will be sending more notices in the coming days,” a senior official told the publication.
According to the official, donations were made to approximately 20 registered but unrecognized political parties. Taxpayers are eligible for a 100% deduction for donations to a registered electoral trust or political party, with the caveat that the deduction cannot exceed the individual’s total income.
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However, discrepancies arose when donations did not align with declared income, leading to suspicions that some parties may have returned a portion of the amount in cash.
“We have sent notices where donation was not in proportion to income,” stated a senior official to ET. In certain instances, taxpayers have contributed up to 80% of their income to a political party that lacks proper registration.
Registered political parties are deemed unrecognized if they have not participated in elections or failed to secure a qualifying vote percentage threshold in assembly or national elections. Similar notices were dispatched by the department last year, prompting updated returns accompanied by penalties and interest.
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Officials highlighted the challenges of evading taxes through such means from FY23 onwards due to enhanced compliance norms.
In 2022, the CBDT amended ITR-7, filed by political parties and charitable trusts, requiring those with incomes exceeding Rs 50 lakh to furnish additional details regarding contributions made to political parties.
