Avoid donating without checking the receipt proforma showing the political party's ECI registration number and PAN.
The Central Board of Direct Taxes has uncovered a large network involving registered unrecognised political parties (RUPPs), chartered accountants and intermediaries that allegedly laundered Rs 9,169 crore under the guise of political donations, according to media reports.
Those making political donations must learn the appropriate procedure and avoid falling prey to intermediaries who promise tax benefits based on bogus donations.
Modus operandi
Bogus political parties with no genuine activity are floated to misuse donation-related exemptions. Intermediaries route contributions to obscure parties to help donors claim deductions.
"Donors transfer funds to registered unrecognised political parties (RUPPs), which issue them donation receipts. Donors claim 100 per cent tax deduction and thus evade income tax. The RUPP then illegally returns most of the money in cash, after deducting a commission," says Ritika Nayyar, partner, Singhania & Co.
Detection mechanisms
The income-tax department uses data analytics and legal verification to detect fraudulent claims.
Each claim is checked for party registration, non-cash payment modes, and authenticity of receipts.
"Advanced analytics detect suspicious patterns like unusually large donations relative to income, round-tripping of funds, or multiple donors linked to the same unrecognised entities," says Suresh Surana, a Mumbai-based chartered accountant.
Surveys and searches are conducted when irregularities surface.
"Fraud is also detected through intelligence-based search operations, scrutiny of delisted or non-compliant political parties, and donors claiming heavy deductions with lesser-known parties," says Rahul Sateeja, partner, DMD Advocates.
Once flagged, taxpayers receive online queries seeking receipt and UTR (Unique Transaction Reference, a code generated by banks for every transaction). Weak responses lead to summons and surveys.
Provisions of Section 80GGC
Section 80GGC allows individuals to claim 100 per cent deduction for contributions to registered political parties or electoral trusts.
The recipient political party must be registered under Section 29A of the Representation of the People Act. (Section 80GGB allows companies to claim this deduction).
"There is no upper monetary limit for claiming these deductions," says Sateeja.
Surana informs that payments must be made through non-cash modes such as cheque, demand draft or electronic transfer.
Donation, deduction procedure
Donations may be made on a political party's website or at its regional offices.
A donor must retain the official receipt or certificate containing the donor's name, amount, date, mode of payment, the party's PAN/TAN and registration number.
The donor must also keep proof of banking transactions, such as cheque counterfoil, cheque image, UTR, transfer statement, or UPI confirmation.
If donating through a volunteer, the party's registration number should be verified on the Election Commission of India Web site.
Pallav Pradyumn Narang, partner, CNK, suggests keeping both hard and soft copies of all documents.
Donors can check Section 29C(3) of the Representation of the People Act (Form 24A) for donations exceeding Rs 20,000.
"Form 24A is published on the ECI website and filed by the party's treasurer," says Sateeja.
The donor must report the contribution under the 'Deductions under Chapter VI-A' section of their I-T return.
"The official receipt and bank payment proof need not be attached to the return but must be produced if asked during assessment," says Nayyar.
Exercise caution
Donate to recognised political parties only. "Understand the party's background and proposed utilisation of funds," says Narang.
He advises avoiding accommodation entries (fake financial transactions) and entities involved in money laundering.
If the department suspects foul play, it notifies taxpayers to revise returns.
"Ultimately, if manipulation is established, the Department disallows the deductions, imposes penalties, initiates reassessment, and, in serious cases, launches prosecution," says Surana.
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Feature Presentation: Aslam Hunani/Rediff
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