Income Tax department issues notices to taxpayers for donations to unrecognized political parties

The Income Tax Department has sent notices to a number of taxpayers who made donations to political parties that are registered, but not recognised by the Election Commission. The notices sent to individuals and corporates are for donations made in FY21 and FY22, to find out whether such payments to lesser-known political parties were used to evade tax and launder money, said people aware of the details.

ET has seen some of the notices sent under Section 80GGC of the Income Tax Act.

“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.

Taxpayers can claim 100% deduction for donations to a registered electoral trust or political party. This is subject to total deduction not exceeding the individual’s total income.

Donations did not match declared income, and it is suspected these parties may have returned some of the amount in cash, said the official cited above. “We have sent notices where donation was not in proportion to income,” a senior official said. In some cases, taxpayers have donated up to 80% of their income to a political party that’s not even properly registered.

Registered political parties are considered unrecognised if they have not contested, or haven’t secured a qualifying vote percentage threshold in assembly or national elections.The department sent similar notices last year too, resulting in updated returns with penalties and interest.Officials said it will be difficult to evade tax in this manner from FY23 after tightened compliance norms. In 2022, CBDT made changes in ITR-7, which is filed by political parties and charitable trusts. From this year, those with income above ₹50 lakh have to give additional details of contributions made to political parties.

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