EC moves to stop parties being used as tax shelters

EC moves to stop parties being used as tax shelters

New Delhi: The Election Commission (EC) of India has begun to crank up pressure on the government machinery to prevent political parties from being used as tax shelters. It has asked the income-tax (I-T) department to take a view on parties that have violated tax laws.

Donations to political parties are tax exempt provided the parties disclose funding details and file returns. Before bringing the tax department into the picture, EC had asked the government to empower it to revoke the registration of defunct parties.

“EC wrote to the I-T department last month asking for records for the last three years to see which political parties have not filed their income-tax returns," a senior EC official said on condition of anonymity. “Donations that these parties receive are tax exempt, but most of the time, and even the donor do not know if the party is even following the procedure and filing returns, hence we and the department need to see what can be done."

“They have asked us to take a view on it," Sudhir Chandra, chairman of the Central Board of Direct Taxes, said on the subject of EC’s letter. The tax department has not yet finalized its position, he added.

Political parties that do not disclose information in time to the tax department or follow procedures, can have their tax exempt status revoked.

Section (13A) of the Income- tax Act, which details exemptions for political parties, adds that they are subject to all procedures being observed.

On 14 January, The Times of India reported that chief election commissioner S.Y. Quraishi had asked the government to empower EC to annul the registration of defunct political parties. According to EC, only 200 of the 1,200 political parties are active, the newspaper report said.

“It is a very good initiative by the Election Commission, which will go a long way," said N. Bhaskara Rao, political analyst and chairman of the Centre for Media Studies.

“Political parties are not complying with any of the rules and existing EC provisions, including submitting annual reports to the commission," he said. “There is absolutely no transparency in the functioning of political parties. For instance, nobody, including EC, knows what is the extent of total corporate donation to political parties."

Political parties started filing tax returns only after a Supreme Court order in February 1996. According to the Representation of the People Act, political parties are to submit a contribution report for every fiscal year ending March to EC on or before the deadline for filing tax returns for that year.

EC issues a certificate to political parties that submit these reports, and this certificate has to be attached to the parties’ tax filings.

Other than asking the tax department to look at the returns of political parties, EC has asked it to help monitor cash expenditure by candidates in the forthcoming Tamil Nadu assembly elections.

According to Chandra, cash expenditure of candidates in the recently concluded Bihar assembly elections was monitored by the director general of tax investigations in the state.

EC was pleased with the impact the tax department’s monitoring had on election expenditure and has asked for help in Tamil Nadu, he added.

Bringing the tax department into the picture is part of an ongoing process initiated by EC to monitor spending. It started a new division devoted to monitoring such spending in September 2009 for closer scrutiny of poll expenses incurred by political parties and candidates.