The Central Board of Direct Taxes (CBDT) has unearthed a large-scale money laundering network worth Rs 9,169 crore involving Registered Unrecognised Political Parties (RUPPs), Chartered Accountants and intermediaries. The funds were falsely shown as political donations to claim illegal tax deductions.
According to officials familiar with the investigation, excess tax deductions of Rs 9,169 crore were claimed over two assessment years - AY 2022-23 and AY 2023-24. Of this, Rs 6,116 crore pertained to AY 2022-23 and Rs 3,053 crore to AY 2023-24. The probe follows a recent expose highlighting how RUPPs were exploiting loopholes in India's political donation laws to convert black money into white.
The Election Commission of India (ECI) had earlier delisted over 800 RUPPs between August and September 2025 for failing to comply with regulatory norms, citing serious financial irregularities.
How the Laundering Network Operated
Sources revealed that the CBDT probe teams across several States and Union Territories examined 420 bank statements, 200 case files and digital evidence, including WhatsApp communications, to map the money trail.
The modus operandi involved donors routing large sums of money to RUPPs through intermediaries and accountants. These unrecognised political entities, registered under Section 29A of the Representation of the People's Act, do not enjoy State or national party recognition but are allowed to receive political donations.
The funds transferred through intermediaries were later claimed as tax-exempt political donations in income tax filings. In reality, donors would receive cash refunds, intermediaries earned commissions and RUPPs served as conduits to launder the funds.
Rs 5,591 Crore Routed Through 36 RUPPs
Investigations revealed that just 36 RUPPs were responsible for Rs 5,591 crore of bogus political donations, nearly 60% of the total amount uncovered. Officials said the scale of the operation underscores the urgent need for data-sharing between the Election Commission and tax authorities and tighter compliance monitoring mechanisms for political entities.
During interrogation, multiple donors admitted to receiving cash refunds after making 'donations', while several intermediaries confessed to earning commissions for aggregating and processing fake receipts.
Fake Receipts and Forged Documentation
The searches led to the discovery of a large number of fake donation receipts, forged donor lists and counterfeit bank books, all used to erase audit trails and enable large-scale bogus deductions. Officials confirmed that the network was well-organised, using professional expertise and shell entities to bypass scrutiny.
CBDT's Compliance Push and Nudge Campaign
The operation is part of CBDT's broader data-driven compliance strategy, which identifies high-risk taxpayers and encourages voluntary correction through nudge communications.
Out of 6.24 lakh taxpayers contacted under the initiative across multiple financial years, 50,842 taxpayers voluntarily updated their returns by August 2025, leading to the withdrawal of Rs 1,487 crore in false deductions and an additional Rs 68 crore in tax payments. Overall, the nudge campaign has resulted in the withdrawal of Rs 2,746 crore in excess deductions.
Strengthening Oversight of Political Funding
The CBDT's findings are expected to reignite the debate on political funding transparency and tax compliance among political entities. Experts say the exposure of this network highlights the need for joint oversight between the Election Commission, Income Tax Department, and Enforcement Directorate (ED) to plug systemic loopholes that enable misuse of tax-exempt political donations.
As investigations continue, authorities are likely to recommend stricter registration norms for RUPPs, mandatory filing of audited accounts, and enhanced scrutiny of political contributions to ensure accountability in India's financial and electoral systems.
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