After capping anonymous cash donations to political parties at Rs 2,000, the government is amending law to make it mandatory for them to file returns on income by December every year or risk losing tax exemption status.
It is also changing the law to keep the identity of the donor confidential who buys the just-introduced electoral bonds from banks to make such donations.
In an interview to PTI, Revenue Secretary Hasmukh Adhia said political parties as per law enjoy exemption from payment of income tax, but half of them do not file income tax returns (ITR) on time.
To promote transparency in political funding, the Budget for 2017-18 seeks to amend law through the Finance Bill by making it mandatory for them to file returns by December end for any assessment year. For example, for assessment year 2018-19 (fiscal year beginning April 1, 2017), returns will have to be filed by December 31, 2018.
"They (political parties) will lose the exemption status if they do not file ITR by December-end. We will give a notice and cancel their exemption status. Through this, strictest discipline will come. Our experience is, for last two years, more than 50 per cent parties are not filing ITR on time. These are smaller parties which do not bother to file returns," Adhia said.
He said these parties will now have to file their audited returns by December or risk losing the exemption status.
"Right now, many political parties file their tax returns very late after 2-3 years. Because there is a provision in the law that you can file late returns but you won't get expenditure allowances if you file late. Now, we are saying whatever is the time limit, within that time limit they have to file I-T returns.
"And the time limit for trusts and political parties is December of the assessment year. Once the financial year is over within 9 months, you will have to file audited ITR," Adhia said.
The government will amend the Representation of People Act to ensure secrecy of the electoral bond buyers, soon notify the banks that will be eligible for issuing such bonds and come out with guidelines for the same by March.
"Amendment to the RBI Act and the I-T Act is already there in the Finance Bill. There is an amendment which we are making in the Representation of People Act which is in the Finance Bill. RPA says all donations above Rs 20,000 will have to be given to the Election Commission with the name and address. The anonymity will be lost there. So, we have to amend that section also," he said.
The amendment to the Representation of People Act will state that if donation is received in 'Bearer Bond', the name of donor need not be mentioned to ensure the secrecy is maintained, Adhia said.
The electoral bonds proposed in the Budget will not carry the name of the donor and can be purchased from authorised banks against cheque or e-payment. Such securities can be redeemed only through registered accounts of a political party.
The current provision of the Income Tax Act provides that up to Rs 20,000 anonymous donation can be accepted and anything above has to be with name. The Budget seeks to amend the provision by saying no political party can accept cash from one person or one company above Rs 2,000.
"And this is made a conditionality for continuing the tax exemption. Enforcement is going to be easy now. So, if there is a breach of this condition, we are entitled to cancel the exemption," Adhia warned.
As for the tax exemption status, political parties do not have to pay any income tax on donations received and also there is a 100 per cent exemption available to persons who donate under 80G.
On filing ITR, the rules require individuals to file returns by July, companies by September and trusts and political parties by December.
"Now, they cannot file late returns. They will have to comply with it because there is a pressure that their exemption status will go away. So, there is sheer time pressure," Adhia said.
In his fourth Budget, Finance Minister Arun Jaitley had limited donations to political parties from a single anonymous source to 10 per cent of the current Rs 20,000 cap. This in line with a recommendation by the Election Commission.
Political parties will continue to be entitled to receive donations by cheque or digital mode from their donors.
An additional amendment has been proposed to the Reserve Bank of India Act to enable issuance of electoral bonds.
Adhia said a notified bank will issue bonds and any donor can buy these bonds through cheque or digital payment. A donor can give the bonds to one or multiple political parties.
The same will be redeemable only in the designated account of a registered political party. Also, they will be redeemable within the prescribed timelimit from issuance of the bonds.
