Retain transfer proof, receipts in political donations for future scrutiny

The receipt must have details such as donor name, amount, date, payment mode, PAN, and party registration number

The Central Board of Direct Taxes (CBDT) has uncovered a large network involving registered unrecognised political parties (RUPPs), chartered accountants, and intermediaries that allegedly laundered ₹9,169 crore under the guise of political donations. Those making political donations must learn the appropriate procedure and avoid falling prey to intermediaries who promise them tax benefits based on bogus donations.

 

Modus operandi 

Bogus political parties with no genuine activity are floated to misuse donation-related exemptions. Intermediaries route contributions to obscure or non-compliant parties to help donors claim deductions under Sections 80GGC, 80GGB, and Section 13A of the Income-tax Act.

 

“Donors transfer funds to registered unrecognised political parties (RUPPs), which issue them donation receipts. Donors claim 100 per cent tax deduction and thus evade income tax. The RUPP then illegally returns most of the money in cash after deducting a commission,” says Ritika Nayyar, partner, Singhania & Co.

 

Detection mechanisms 

The Income-tax Department uses data analytics and legal verification to detect fraudulent claims. Each Section 80GGC claim is checked for party registration, non-cash payment modes, and authenticity of receipts.

 

“Advanced analytics detect suspicious patterns such as unusually large donations relative to income, round-tripping of funds, or multiple donors linked to the same unrecognised entities,” says Suresh Surana, a Mumbai-based chartered accountant.

 

A large data-matching system verifies donation claims with bank records, Election Commission filings, and Ministry of Corporate Affairs (MCA) disclosures (for companies).

 

Surveys and searches are conducted when irregularities surface. “Fraud is also detected through intelligence-based search operations, scrutiny of delisted or non-compliant political parties, and donors claiming heavy deductions with lesser-known parties,” says Rahul Sateeja, partner, DMD Advocates.

 

Once flagged, taxpayers receive online queries seeking receipt and UTR (Unique Transaction Reference — a 22-character code generated by the bank for every transaction) details. Weak responses may lead to summons, surveys, or searches.

 

Which sections? 

Section 80GGC allows individuals (other than certain government-funded entities) to claim full deduction for contributions to registered political parties or electoral trusts. Electoral trusts distribute donations to registered parties according to their mandate. The recipient political party must be registered under Section 29A of the Representation of the People Act. (Section 80GGB allows companies to claim deductions for political contributions.)

 

“There is no upper monetary limit for claiming these deductions,” says Sateeja. “Payments must be made through non-cash modes such as cheque, demand draft, or electronic transfer,” adds Surana.

 

Donation and deduction procedure 

Donations may be made on a political party’s website or at its regional offices through cheque, demand draft, or account transfer. Donations to electoral trusts also qualify.

 

A donor must retain the official receipt or certificate containing the donor’s name, amount, date, mode of payment, and the party’s PAN/TAN and registration number. The donor must also keep bank proof such as cheque counterfoil, cheque image, UTR, transfer statement, or UPI confirmation.

 

“Donation details should match the political party’s records filed with the Election Commission,” says Surana.

 

For donations via electoral trusts, the trust’s acknowledgement or certificate must be kept. If donating through a volunteer, the party’s registration number should be verified on the ECI website. Any email or acknowledgement from the party and its Election Commission reference should also be retained.

 

Pallav Pradyumn Narang, partner, CNK, suggests keeping both hard and soft copies of all documents.

 

A donor can check compliance under Section 29C(3) of the Representation of the People Act (Form 24A) for donations exceeding ₹20,000. “Form 24A is published on the ECI website and filed by the party’s treasurer,” says Sateeja.

 

For electoral trusts, donors can review the contribution report published by the ECI.

 

The contribution must be reported under the “Deductions under Chapter VI-A” section of the ITR. “The official receipt and bank payment proof need not be attached to the return but must be produced if asked during assessment,” says Nayyar.

 

Exercise caution 

Donations should be made only to recognised political parties. “Understand the party’s background and the proposed utilisation of funds,” says Narang. He also advises avoiding accommodation entries (fake financial transactions) and entities involved in money laundering.

 

Remember that if the department suspects foul play, it notifies taxpayers to voluntarily revise returns before reassessment. “Ultimately, if manipulation is established, the department disallows the deductions, imposes penalties, initiates reassessment, and, in serious cases, launches prosecution,” says Surana.

 

The writer is a Mumbai-based independent financial writer. 

Mistakes to avoid

• Do not donate through a volunteer or intermediary who refuses to disclose the party’s ECI registration number
• Avoid donating without checking the receipt proforma showing the political party’s ECI registration number and PAN
• Do not donate to political parties delisted by the Election Commission
• Do not donate in response to unknown phone calls or online popups

Source: DMD Advocates