Seeking to stem the flow of black money in polls, the Election Commission has urged the government to amend laws to ban anonymous contributions of Rs 2,000 and above made to political parties.
There is no constitutional or statutory prohibition on receipt of anonymous donations by political parties. But there is an “indirect partial ban” on anonymous donations through the requirement of declaration of donations under section 29C of The Representation of the People Act, 1951.
But, such declarations are mandated only for contributions above Rs 20,000.
- The Income Tax Act exempts political parties from being taxed on voluntary contribution, income from capital gains, house property and other sources.
- Post demonetisation, these exemptions still hold, but the government has asked for proper documentation on donations exceeding Rs 20,000, including the identity of the donor.
- Cash donations may still be made in Rs 1,000 and Rs 500 banknotes till December 30, when the government’s window for exchanging the scrapped notes for valid money closes.
- The Election Commission is seeking to stem the flow of black money into the upcoming assembly polls by limiting anonymous donations to Rs 2,000 instead of Rs 20,000.
As per the proposed amendment, sent by the Commission to the government, and made part of its compendium on proposed electoral reforms, “anonymous contributions above or equal to the amount of Rs 2,000 should be prohibited.”
The government had said on Friday that political parties depositing old 500 and 1,000 rupee notes in their accounts will be exempt from income tax provided the donations taken are below Rs 20,000 per individual and properly documented.
Revenue secretary Hasmukh Adhia said the government is not tinkering with the tax exemption available to political parties and they are free to deposit old 500 and 1000 rupee notes in their bank accounts. But these deposits will be subject to the condition that individual donations taken in cash do not exceed Rs 20,000 and are properly documented with full identity of the donor.
The Commission has also proposed that exemption of income tax should only be extended to political parties that contest elections and win seats in Lok Sabha or assembly polls.
Section 13A of the Income Tax Act, 1961 confers tax exemption to political parties for income from house property, income by way of voluntary contributions, income from capital gains and income from other sources.
Only income under the head ‘salaries and income from business or profession’ are chargeable to tax in the hands of political parties in India.
The Commission said, “There could be cases where political parties could be formed merely for availing of provisions of income tax exemption if the facility, that are at the expense of the public exchequer, is provided to all political parties.”
In yet another recommendation to check black money, the EC has asked the law ministry to ensure that political parties are made to register details of donors for coupons of all amounts on the basis of a Supreme Court order of 1996.
Coupons are one of the ways devised by the political parties for collecting donations and hence are printed by the party itself. There is no cap or limit as to how many coupons can be printed or its total quantum.
Currently, the details of donors is not required for coupons with small amounts such as for Rs 10 or 20. “These smaller sums aggregate into a bigger amount and hence, they need to be accounted for, to ensure transparency,” the Commission said.