The Income Tax Department has issued notices to numerous taxpayers who contributed funds to political parties registered but not recognized by the Election Commission.
The notifications, pertaining to donations made during the fiscal years 2021 and 2022, aim to investigate whether these payments to less-known political entities were utilized for tax evasion and money laundering, according to sources familiar with the matter.
A senior official disclosed that approximately 5,000 notices have been dispatched for FY21 and FY22, with more expected to be sent soon. The recipients had made donations to around 20 registered but unrecognized political parties, as per the official.
Taxpayers can avail themselves of a 100% deduction for donations to a registered electoral trust or political party, with the condition that the deduction does not surpass the individual’s total income. It has been observed that some donations did not align with the declared income, raising suspicions that these parties might have returned a portion of the funds in cash.
Notices were issued in cases where the donation was disproportionate to the income, including instances where taxpayers donated up to 80% of their income to a political party lacking proper registration. Political parties are deemed unrecognized if they haven’t contested elections or failed to meet the qualifying vote percentage threshold.
The Income Tax Department had issued similar notices last year, resulting in updated returns with penalties and interest. Officials anticipate that tax evasion through such means will become more challenging from FY23 onwards due to enhanced compliance norms.
In 2022, CBDT had introduced changes in ITR-7, filed by political parties and charitable trusts, requiring those with income exceeding ₹50 lakh to provide additional details of contributions made to political parties.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
