More than 3500 taxpayers get Income Tax notice for donation to bogus political parties

Over 3,500 taxpayers received show-cause letters from the income tax (I-T) division in the final week of March about contributions they made to fake political parties during the financial year 2018–19. According to experts, if such taxpayers can’t demonstrate that the donations were legitimate, they risk paying up to 83% of the donation’s value in tax and penalties. Moreover, the government may levy additional fines of up to 200% of the tax liabilities.

“The I-T department, in a statewide search in July, uncovered several registered unrecognised political parties (RUPP), who were not involved in any election activity but were formed simply for the purpose of fake donations,” claimed chartered accountant Sulabh Padshah.

In the final week of March, letters were sent to about 3,500 recipients of these fraudulent donations, and another 15,000 notices for the upcoming financial years 2019–20 and 2021–22 may also be issued.

False contribution entries are offered by a lot of political parties that are registered under Section 29A/29AA of the Representation of the People Act 1929. The majority of these donors are employees or in proprietary businesses.

Corporate entities and businesses have also abused the fact that donors are eligible for a 100% income tax deduction under Sections 80GGB and 80GGC of the Income Tax Act of 1961.

Sources claim that these political parties take donations by check or RTGS and then reimburse the recipients with cash after deducting commissions that range from 1% to 6%.

Depending on their income bracket, those making the donation can deduct 100% of it from their taxes, saving them up to 30%.