The Supreme Court of India is examining a petition seeking to eliminate income tax exemptions for political parties, focusing specifically on anonymous cash donations under ₹2,000. A bench led by Justice Vikram Nath has requested responses from the government, the Election Commission of India, and the Central Board of Direct Taxes (CBDT). The hearing is scheduled to continue after four weeks.
The petition challenges Section 13A(d) of the Income-tax Act, 1961, which grants tax exemptions to political parties for these small, anonymous cash donations. The petitioner, Khem Singh Bhati, argues that this provision violates Articles 14 and 19(1)(a) of the Constitution of India. Bhati is seeking a directive requiring political parties to disclose the identities and details of all donors, advocating that no cash donations should be permitted to ensure transparency in political funding.
The plea also requests the CBDT to scrutinize the income tax returns and audit reports filed by political parties over the past five years. The aim is to initiate appropriate legal proceedings, including tax levies, penalties, and prosecutions, for any non-compliance with Section 13A of the Income-tax Act, 1961, in conjunction with Section 29C of the Representation of the People Act, 1951.
The petitioner contends that allowing tax exemptions for anonymous cash donations can potentially influence elections and undermine the democratic process. Senior Advocate Vijay Hansaria, representing the petitioner, emphasized that transparency in political party funding is a fundamental right. He noted that the tax exemption under Section 13A is based on the condition that political parties disclose contributor details, including PAN and bank information. The petition argues that with the rise of digital payments, there is no justification for continuing to allow cash contributions. It highlights instances where some parties report "nil contributions" by classifying their entire inflow as cash membership fees.
Section 13A of the Income Tax Act provides tax exemptions to political parties on income from house property, voluntary contributions, capital gains, and other sources, provided they meet certain conditions. These conditions include being registered with the Election Commission of India, maintaining proper accounts, getting accounts audited by a chartered accountant, not receiving donations above ₹2,000 in cash, and filing income tax returns on time. Political parties are required to file their income tax returns annually, with audited accounts and details of income and expenditure, by September 30th of each year.
The Supreme Court's examination of this plea highlights the ongoing debate about transparency and accountability in political funding. The outcome of the hearing could have significant implications for how political parties in India raise and manage their funds, potentially leading to greater transparency and a more level playing field in the electoral process.
