Monday 5 December 2022
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PoliticsIndiaParties can't evade I-T wantonly, govt clarifies

Parties can’t evade I-T wantonly, govt clarifies

New Delhi: Through a press release issued today, the Ministry of Finance (MoF) has sought to bust a myth doing the rounds of a section of the mainstream and social networking sites that the political parties of India can easily turn into a tool to defeat the purpose of demonetisation. “There have been some newspaper reports, which seem to wrongly suggest that there cannot be any scrutiny of Income Tax returns of political parties registered with the Election Commission in the context of deposits of old currency notes,” the release reads. “This inference,” the ministry says, “seems to have been drawn because of the fact that the income of the political parties is exempt from Income Tax under Section 13A.”

Finance Minister Arun Jaitley’s statement [click on the image to enlarge]
Then, the ministry clarifies that “the exemption from income tax is given to only (sic) registered political parties subject to certain conditions, which are mentioned in Section 13A, which includes keeping and maintaining books of accounts and other documents as would enable the Assessing Officer to deduce its income therefrom.”

“In respect of each voluntary contribution in excess of Rs.20000,” the government says, “the political party will have to maintain a record of such contributions along with the name and address of such person who has made such contribution.”

“The accounts of each such political party is to be audited by a chartered accountant,” the government says, adding, “The political party has to submit a report to the Election Commission about the donations received within a timeframe prescribed.”

“There are enough provisions in the Income Tax Act,” the ministry asserts, “to scrutinise the accounts of the political parties and these political parties are also subject to other provisions of (the) Income Tax (law) including (the act of) filing of return.”

n the meantime, some supporters of the government have added to the clarification issued by the MoF. Facebook user Kshitij Mohan Singh has posted the following update on his wall (edited with the permission of the author).

“‘(The) Finance Ministry says political parties are exempt from income tax on depositing old news,’ is the headline doing the rounds all over since yesterday. If you just read the headlines, there is a high probability that you may fall for it and believe that the Narendra Modi government has allowed political parties to deposit all the new notes without paying tax,” KM Singh says. He further puts the facts in a Q&A format that includes 3 questions and 2 affirmative statements.

  1. Has Modi government made this rule that political parties can deposit all the old notes without paying tax?
    1. No. Section 13 A of the Income Tax Act clearly states that any deposit made by political parties is not taxable. This act has been in place since 1961.
  2. Is it true that (the premises of the) political parties will not be raided or questioned by the income tax department?
    1. No. Half-baked information again! Political parties are exempted from providing any information only for donations below Rs 20,000 per individual donor — provided it is properly documented.
    2. Any amount greater than Rs 20,000 cannot be donated to a party in cash. It has to be through draft or cheque.
    3. If an amount greater than Rs 20,000 is donated by cash, it is against the rule; such a sum will be taxable.
  3. What about multiple donations of less than Rs 20,000?
    1. Every party is exempt from income tax only if it maintains an account book, properly documenting every donation they receive below Rs 20,000.
    2. For the party to be able to file income tax returns, every donation has to be accounted.
  4. The tax exemption is applicable only if the political party keeps and maintain such books and other documents of the income and the accounts are audited by a chartered accountant.
  5. So, any amount of unaccounted cash deposited by political parties will be taxable. The tax exemption is only for properly accounted donations, and this is an age-old rule under Section 13A of Income Tax Act 1961. (Yes, 1961 when Modi was just 11)

Singh concludes the post by saying, “This means that if a political party has a huge stash of unaccounted black money in cash, it cannot deposit it in the banks and be exempted from tax. For unaccounted cash deposits, it will be taxed just like an individual or organisation is.”

“Before, falling for reports,” he says, “kindly do some research and be a well-informed citizen. All the documents and information from the original sources are available on the internet. Be informed.”

Revenue secretary, Ministry of Finance, Hasmukh Adhia tweeted 6 statements to put all speculations in this regard to rest.

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