Karniti Part-6: Taxation of Political Parties under Income Tax

Arjuna: Krishna, In India now a day’s election is the topic of discussion among all.

Lord Krishna: Just now all have celebrated “Vijayadashmi” and Festive season is going on and all businessmen have started their work. Due to upcoming election in some states, government machinery has also started working.

Arjuna: Krishna, Political parties are governed by Election Commission norms but are there any provisions governing these political parties under Income Tax Act?

Lord Krishna: Arjuna, as per Income Tax Act, Income earned by political parties is exempt.

Arjuna: Oh, but Why? Whereas Citizens obediently comply and pay Income Tax, Please explain income tax exemption related to political parties?

Lord Krishna: Listen Arjuna, under Income Tax Act following income is exempt to political parties:

1. Income chargeable under the head ‘Income from House Property’ for e.g. rent, etc.

2. Income chargeable under the head ‘Income from other sources’ for e.g. interest, etc.

3. Income by way of capital gains.  

4. Income by way of voluntary contribution from any person. But details of money received above Rs. 20,000/- have to be maintained such as Name, Address, etc. of Donors.

For getting above exemption registration of political parties as per directions by Election Commission is compulsory. Further Political parties should get their accounts audited and file Income Tax Return regularly. Now Political parties are covered under Right to Information Act. It will be worthwhile to mention here that, The Social organization “Association of Democratic Reforms” on its web site “atrindia.org” has given very interesting information about income, expenditure, income tax returns, etc. of the political parties. This organization has given useful and comparable information as regards receipts and utilization of funds by political parties.

Arjuna: Great! Krishna, Voters should use this information in a right perspective. Further, What about the person and business groups giving donations to political parties?

Lord Krishna: As per section 80 GGB/ GGC of Income Tax Act, the person giving donation can get the deduction of amount paid to political parties. Further in case of Companies, donation can be given by forming separate entity i.e., “Electoral Trust”. The company can get the deduction of amount invested in the Electoral Trust. It is necessary for Electoral Trust to give donations to political parties. Further these Electoral Trusts should be registered and as per provisions of the Income Tax Act.  

Arjuna: Tell me something related to Income and Expenditure of the candidate contesting election.    

Lord Krishna: In different states according to type of election, Election Commission of India has specified the limit of expenditure for e.g. In Maharashtra State, the limit of expenditure for parliamentary constituency was Rs. 40 Lakhs and for assembly constituency was Rs. 16 Lakhs. Please note that, Limit of expenditure is revised at the time of every election. Further candidates have to incur expenditure through separate bank account. The details of expenditure incurred should be submitted within 30 days from the date of result of election. Further there are limitations on the type of expenditure that can be incurred. Further, while filing the application for election candidate is required to give information about personal assets, income and income tax, etc. The information submitted should be accurate as the same is verified by the Income Tax Department. 

Arjuna: What we should learn from the above discussion of taxation of political parties?

Lord Krishna: Arjuna, the persons to whom the tax exemption has been given, should use it for the growth of nation. India is agriculture based Nation thus, only 3% to 4% people pay Income Tax. “The one who pays tax, always suffers” this wrong thinking should not spread in general public. Therefore equal and fair tax policy is the need of hour.

Yesterday all have celebrated the festival of “Vijayadashmi” which conveys a very important message of “Victory of Good over Evil.” Accordingly to defeat the Ravana of corruption, all Political parties and Citizens will have to make joint efforts. It is the responsibility of all citizens to follow Social and Financial regulations scrupulously for the progress of the country. If you do good, then only good will return to you.