Income Tax Department Recovers Rs. 1,400 Crore from Fake Donations to political parties

The Income Tax Department has recovered a total of Rs. 1,400 crore from 63,000 people who avoided paying taxes by donating to unrecognised political parties (RUPPs) from the previous two years, 2022 to 2024.

RUPPs is one of the political parties in India that is unable to achieve the minimum passing votes in both the Assembly or Lok Sabha elections to form a state or national government.

There, in this case, both RUPPs and donors have fully enjoyed tax exemptions, RUPPs by receiveing the donated money and donors by donating money.

A report in March 2024 revealed that over 3,264 RUPPs got more than Rs. 10,000 crore in donations during the past two years, and many of these parties were suspected of being used for money laundering.

More than 4 lakh people have enjoyed tax exemptions from these donations. The Income Tax (I-T) Department, after investigating and finding irregularities, started sending warning messages and emails to these donors in January 2024, asking them to pay the taxes they owed or face penalties.

Many donors, after getting these warnings, corrected their tax returns and paid back more than Rs. 1,000 crore. However, those who missed the due date to fix their returns paid Rs. 400 crore in penalties by March 31, 2025.

The I-T Department is trying to enhance tax compliance without resorting to force. But if taxpayers do not abide by the norms, they will be subjected to measures like comprehensive tax assessments.

Donors in 2023-24 had claimed more than Rs. 10,975 crore as tax exemptions, while RUPPs reported receiving just Rs. 4,858 crore, leaving Rs. 6,116 crore unexplained. This unexplained money is believed to have been diverted to illicit ends.

In the same timeframe, tax exemptions availed by the donors were Rs. 9,610 crore, while RUPPs reported just Rs. 6,556 crore in donations. The remaining must have been utilised as black money.

RUPPs have increased dramatically in recent years, expanding from 694 in 2001 to 3,264 by March 2024, exploiting loopholes in the law and lax surveillance by the Election Commission of India (ECI).