ITR Alert: Returns filed by Unrecognised Political Parties and Educational Institutions to face Mandatory Scrutiny

The political parties, educational institutes and scientific bodies that are not recognised by the Income Tax department will face difficulty as their ITRs will be chosen for mandatory scrutiny. The Central Board of Direct Taxes (CBDT) has recently issued guidelines where it has stated certain cases where the ITR filed will be picked for compulsory scrutiny.

As per the guidelines, if an institution or trust registered under Section 12A, 12AB, 10(23C), or 35(1)(ii)/(iii) has cancelled its registration on or before March 31, 2024 and still has claimed exemption in the return filed in ITR-7, then in such cases, the ITR filed by them will be picked for mandatory investigation. However, cases where the withdrawal of GST registration has been reversed or set aside in appellate proceedings, then such a case will not fall under the mandatory investigation.

ITR-7 is filed by some organisations that claim tax deduction and exemption. These organisations can be charitable trusts, political parties, research bodies, and universities.

This decision is important, as more than 3,260 registered unrecognised political parties (RUPPs) received over Rs. 10,000 crore in donations between 2022 and 2024. It is suspected that a major part of this fund is illegal, as it is believed to be funnelled through shell companies using a complicated network of bank accounts.

RUPPs are political parties that have not secured enough votes in the Assembly or Lok Sabha elections to become a State or national party. On May 25, 2022, the Election Commission of India (ECI) said that 75% of these parties did not even take part in elections. Over 90% of them also failed to submit the required compliance reports to State Chief Electoral Officers or the ECI, yet they still claim tax exemptions.