The Income Tax Department has initiated a probe into political donations made to registered yet unrecognized political parties during the financial years 2020-21 and 2021-22. The department has issued notices to numerous taxpayers suspected of contributing to such parties, aiming to investigate potential tax evasion and money laundering through these transactions.
Under Section 80GGC of the Income Tax Act, evidence of these notices has surfaced, indicating a targeted approach by tax authorities towards scrutinizing political contributions. Sources reveal that approximately 5,000 notices have been dispatched for the aforementioned financial years, with plans for further action in the pipeline.
The donations under investigation were directed towards around 20 registered but unrecognized political parties, according to a senior official. Despite the provision for taxpayers to claim a 100% deduction for donations made to registered electoral trusts or political parties, discrepancies have arisen when the donated amounts do not align with the declared income.
Instances where the donated sums significantly exceed the individual's total income have raised suspicions of potential money laundering. Some taxpayers purportedly allocated up to 80% of their income to unrecognized political entities, indicating irregularities in the donation process.
The designation of political parties as unrecognized stems from their failure to contest elections or secure a qualifying vote percentage threshold in assembly or national elections. Similar notices were dispatched last year, resulting in revised returns accompanied by penalties and interest.
Authorities foresee enhanced challenges for tax evaders from the financial year 2022-23 onwards, owing to stricter compliance regulations. Notably, the Central Board of Direct Taxes (CBDT) introduced amendments to ITR-7 in 2022, mandating entities with income exceeding ₹50 lakh to furnish additional details regarding contributions made to political parties. These measures signal a concerted effort by tax authorities to curb tax evasion and ensure greater transparency in political funding.
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