NEW DELHI -- Seeking to check the use of undisclosed wealth and money laundering in politics, the Election Commission has recommended the government to amend laws to allow exemption from tax only to parties that win seats in elections and ban anonymous contributions of ₹2,000 and above to parties.
Section 13A of the Income-Tax Act, confers an 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.
The Commission has now proposed that exemption of income tax only be extended to political parties that contest elections and win seats in the Lok Sabha or Assembly polls.
The Commission said, "There could be cases where political parties could be formed merely for availing of provisions of tax exemption if the facility, that are at the expense of the public exchequer, is provided to all political parties."
There is also 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.
But, such declarations are mandated only for contributions above ₹20,000.
According to 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 ₹2,000 should be prohibited".
Revenue Secretary Hasmukh Adhia clarified that political parties cannot accept old ₹500 and ₹1,000 notes as donations, as both these bills have ceased to be legal tender.
"All reports on the alleged privilege to political parties are false and misleading. Political parties have not been granted any exemption or privilege, post demonetisation & introduction of the Taxation Amendment Act, 2016," he said in a series of tweets.
"Post demonetisation, no political party can accept donations in ₹500 and ₹1,000 notes since they were rendered illegal tenders. If there is any discrepancy, political parties are as liable to be questioned by I-T authorities as is anyone else. They enjoy no immunity," Adhia added.
In another recommendation to check black money, the EC has asked the law ministry to ensure 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 or limit as to how many coupons can be printed or for what total amount.
Currently, the details of donors are not required for coupons with small amounts such as for ₹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.
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