In a major crackdown on electoral tax abuse, the Income Tax Department has recovered Rs 1,400 crore from over 63,000 individuals who evaded taxes by falsely claiming deductions for donations made to registered unrecognised political parties (RUPPs) during the financial years 2022-23 and 2023-24.
According to official sources, more than Rs 1,000 crore in false deductions were voluntarily reversed by taxpayers who filed revised income tax returns after being alerted via the department's recent "nudging exercise" - a strategic initiative launched in late January 2025. An additional Rs 400 crore was recovered as penalties from donors who missed the deadline to revise their filings.
The operation follows alarming revelations that over 3,264 RUPPs received donations exceeding Rs 10,000 crore during the two-year period, with many parties reportedly acting as conduits for money laundering. A March 21 investigation by BusinessLine first spotlighted the extent of misuse, prompting swift action from the CBDT.
RUPPs, unlike recognized national or state parties, enjoy tax exemption on received donations under existing law. Similarly, donors can claim deductions under Sections 80GGC and 80GGB of the Income Tax Act. However, loopholes in the system have led to widespread abuse, with shell parties being used to divert black money under the guise of political contributions.
The scale of the irregularities is staggering:
- In FY 2023-24, donors claimed exemptions worth Rs 10,975 crore, while RUPPs declared only Rs 4,858 crore as received donations - leaving a Rs 6,116 crore gap unaccounted for.
- In FY 2022-23, a similar pattern emerged: Rs 9,610 crore in exemptions were claimed, but only Rs 6,556 crore was officially declared by RUPPs.
- Investigators uncovered that Rs 3,053 crore - about 31.7% of the donations - was rerouted through shell companies using hundreds of interlinked bank accounts, indicating a structured laundering operation.
The CBDT emphasized its intention to improve voluntary compliance through data analytics and non-coercive methods, but also warned that failure to respond could invite scrutiny assessments and legal action under relevant provisions of the Income Tax Act.
Meanwhile, the mushrooming of RUPPs - from 694 in 2001 to 3,264 as of March 2024 - continues to raise red flags. Experts say this unchecked growth is due to legal loopholes, lack of stringent enforcement, and inadequate monitoring by the Election Commission of India and state-level Chief Electoral Officers.
As the government intensifies its war on black money and political funding irregularities, this recovery of Rs 1,400 crore is likely just the beginning of a broader clean-up drive targeting tax abuse under the garb of electoral donations.
CAclubindia
