Political entities play a crucial role in shaping the future of India by representing the interests of various sections of society. However, they require financial resources to carry out their activities, and as such, they are obligated to raise funds to meet their expenses. Under the provisions of the Income Tax Act, 1961, political parties are subject to taxation on their income. However, the provisions governing the incomes of political parties are distinct from those for other entities. In this article, we will delve into the unique provisions related to the incomes of political parties under the Income Tax Act, 1961.
As per the Income Tax Act, a political party is defined as any group of people or association registered with the Election Commission of India as a political party under Section 29A of the Representation of the People Act, 1951.
Regarding voluntary contributions, any income derived by a political party from such donations is exempt from tax, provided that the donations do not exceed 20% of the total income of the political party in a financial year.
Furthermore, any income of a political party that is not exempt under Section 13A of the Income Tax Act, 1961, is subject to taxation at a rate of 30%. However, the following incomes are exempt from taxation:
Income from property owned by a political party, which is used for its activities.
Income from capital gains arising from the transfer of assets owned by a political party, which is used for its activities.
Any income received by a political party from an electoral trust established under Section 88G of the Income Tax Act, 1961.
Any income received by a political party from the contributions made by a person who is not a citizen of India or a company incorporated outside India.
Any income received by a political party from the contributions made by an individual, where the aggregate amount of such contribution does not exceed Rs. 2,000.
Any income received by a political party from the contributions made by any person, where the political party maintains a record of such contributions and the identity of the contributors.
Every political party is mandated to maintain accurate books of accounts and get them audited annually by a qualified chartered accountant. The audit report and the income and expenditure statement of the political party should be submitted to the Election Commission of India by 30th September every year.
Additionally, every political party is required to present a statement of donations received in excess of Rs. 20,000, along with the names and addresses of the donors, to the Election Commission of India before 31st October every year.
In conclusion, the specific provisions related to the incomes of political parties under the Income Tax Act, 1961, aim to ensure that political parties have adequate financial resources while maintaining transparency and accountability in their functioning. These provisions strike a balance between the need for financial resources and the need for transparency in the finances of political parties.
section 13A of Income Tax Act, 1961
Any income of a political party which is chargeable under the head “Income from house property” or “Income from other sources” or “Capital gains” or any income by way of voluntary contributions received by a political party from any person shall not be included in the total income of the previous year of such political party :
Provided that—
(a) such political party keeps and maintains such books of account and other documents as would enable the Assessing Officer to properly deduce its income therefrom;
(b) in respect of each such voluntary contribution other than contribution by way of electoral bond in excess of twenty thousand rupees, such political party keeps and maintains a record of such contribution and the name and address of the person who has made such contribution;
(c) the accounts of such political party are audited by an accountant as defined in the Explanation below sub-section (2) of section 288; and
(d) no donation exceeding two thousand rupees is received by such political party otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed98 or through electoral bond.
Explanation.—For the purposes of this proviso, “electoral bond” means a bond referred to in the Explanation to sub-section (3) of section 31 of the Reserve Bank of India Act, 1934 (2 of 1934):
Provided further that if the treasurer of such political party or any other person authorised by that political party in this behalf fails to submit a report under sub-section (3) of section 29C of the Representation of the People Act, 1951 (43 of 1951) for a financial year, no exemption under this section shall be available for that political party for such financial year:
Provided also that such political party furnishes a return of income for the previous year in accordance with the provisions of sub-section (4B) of section 139 on or before the due date under that section.
Explanation.—For the purposes of this section, “political party” means a political party registered under section 29A of the Representation of the People Act, 1951 (43 of 1951).
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