Political parties depositing old notes exempt from tax

Clarification draws flak from Twitterati, which questioned why the notes are illegal tender for public, but legal for politicians

Political parties depositing old Rs 500 and Rs 1,000 currency notes in their accounts are exempt from income tax, Revenue Secretary Hasmukh Adhia clarified on Friday, even as the government levied stiff penalty on unaccounted cash in banks and came out with new disclosure scheme.

“If it is a deposit in the account of a political party, it is exempt. But, if it is deposited in an individual’s account, then that information will come into our radar. If the individual is putting money in his own account, then we will get 

information,” he told reporters here. 

While the provisions are in sync with the current provisions of the Income Tax Act, the clarification drew flak from the public on Twitter. 

One of the tweets said: “It means what is illegal tender for the people in never-ending queues, is perfectly legal tender in the hands of politicians?”

Section 13 A of the Income Tax Act, 1961, exempts political parties from the tax for income from house property, income from other sources, capital gains and income from voluntary contributions received from any person.

To avail of this exemption, political parties have to keep and maintain such books, which would enable tax officer to properly deduce income of political parties from the above mentioned sources.

There is no cap on income to be exempt from the income tax. According to the Representation of the People Act, 1951, political parties are not required to report to the Election Commission the names of the individuals or organisations from whom they have received donations of amounts less than Rs 20,000. Besides, farmers who are exempt from paying tax on agriculture income will need to furnish a self-declaration that their earnings are less than Rs 2.5 lakh in a year to make bank deposits without PAN.

For those unable to do that, furnishing permanent account number (PAN) will be required, Adhia said. Asked if PAN will be made mandatory for deposits made by farmers, he said: “A farmer has to give self declaration in Form 60 where he has to declare that his income is less than Rs 2.5 lakh. If he files Form 60, then PAN is not required. Those who are not able to give declaration, have to give PAN.” Adhia said the tax authorities would not unnecessarily chase deposits of less than Rs 2.5 lakh. “We will not go unnecessarily after those with Rs 2.5 lakh deposits. But, where we find people have tried to misuse the provision by putting in multiple accounts in different banks (we will go after them),” he said.