Income Tax News: Many taxpayers who made donations to registered political parties that the Election Commission does not recognise have received letters from the Income Tax Department. According to people with knowledge of the specifics, notifications have been given to individuals and corporations about donations made in FY21 and FY22. The purpose of the letters is to investigate whether or not these payments to obscure political parties were used to dodge taxes and launder money.
Section 80GGC Notices Issued
A portion of the notices issued under Section 80GGC of the Income Tax Act have been seen by ET. “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 ET. The donations were made to about 20 registered, but unrecognised, political parties, the official said.
Tax Deductibility of Political Donations
Donations to a political party or registered electoral trust are 100% deductible by the taxpayer. The entire deduction must be greater than the person’s total income. According to the aforementioned official, donations did not match claimed income, and it is believed that these parties may have returned a portion of the money in cash.
“We have sent notices where donation was not in proportion to income,” a senior official said. In certain instances, taxpayers have given a political party that isn’t even legally registered up to 80% of their income.
Recognition Criteria for Political Parties
If a registered political party does not have a qualifying vote percentage threshold in assembly or national elections, it is deemed unrecognised. Similar letters were given by the agency last year as well, which led to amended reports that included interest and penalties.
Officials stated that due to tighter compliance standards, it will be more difficult to dodge taxes in this way starting in FY23. The ITR-7, which political parties and charitable trusts file, underwent modifications in 2022 according to CBDT. As of this year, anyone earning more than ₹50 lakh are required to provide more information about the contributions they have made to political parties.
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