The government has once again succeeded in keeping the masses confused for one more year by completing the annual ritual of budget exercise. The intellectuals are still debating the long term gains of demonetisation which has certainly caused short term irreversible PAIN to already struggling SME sector and our large farmer community.
The swift availability of information has educated the common man more what government would have desired for so any government in power can no longer afford to ignore the loopholes and pitfalls in our fiscal and economic policies glaringly written on the wall.
The budget 2017 certainly addresses most of such pitfalls and passé the test of presenting a GOOD BUDGET with a very good score by maintaining stability in Tax rates, giving marginal relief to honest tax payers, burdening a bit the high income earners who are virtually TAX EVADERS because only 24 lakhs people declare their income more than Rs.10 lakhs per annum, spending more for agriculture and infrastructure, pushing less cash economy, budgeting more safety of our railways and so on.
By that standard, it is the least controversial budget which pleases almost all sections of society apparently because there is nothing harsh even for those (TAX EVADERS) who have been benefiting from impartial, inefficient and unjust tax system in the country. So we can see captains of industry, economists, politicians and well positioned people lauding the Budget-2017 as there is a status quo at least. We all owe a gratitude to the government in power for not adding miseries to our economic life.
However undoubtedly It has miserably failed to address the cancer of corruption and black money generations except making some inconsequential changes in political Funding and cash transaction.
In his own admission of our Honourable Finance Minster – ‘India on the whole is a non tax complaint country’ substantiated by smart data analysis also.
‘The ratio of Indirect tax and Direct tax to GDP is alarmingly disturbing signifying an unjust tax system in the country.’
The biggest irony of today is though there is repeatedly an open acceptance of such fatal ills in our tax system destroying the economic dividend of higher GDP earned but the actions taken are counterproductive. They do nothing much except creating sensational headlines of undertaking revolutionary REFORMS for some time. They end up further complicating the issue which is the real hidden agenda of such wild declarations.
Let me now focus only with steps announced for curbing black money getting into the hands of politicians (our rulers) legitimately by way of political Funding.
EXISTING TAX IMPLICATION FOR POLITICAL PARTIES
Section 13A of the Income-tax Act, 1961 confers tax-exemption to recognized political parties for income from house property, income by way of voluntary contributions, income from capital gains and income from other sources. In other words, only income under the head salaries and income from business or profession are chargeable to tax in the hands of political parties in India.
These political outfits can enjoy the above-said tax-exemption if they maintain proper books of accounts and other documents along with a record of contributions in respect of donations to the party in excess of Rs 20,000. Further, the accounts of such political party are to be audited by a chartered accountant and the party must be registered with the Election Commission of India.
Under section 139(4B) of the Income tax Act, 1961, political parties are however under a statutory obligation to file return of income in respect of each assessment year.
Further, the amendment made in 2003 to the Representation of the People Act, 1951 requires that the treasurer of every political party must file a declaration in respect of donations exceeding Rs. 20,000 at a time.
The party treasurer of a political party must file a report of contributions received to the Election commission before the due date for furnishing the return of income under Section 139 of the Income tax Act. More importantly, section 13A has been amended and tax exemption for a political party is contingent upon the submission of the report by the party treasurer.
The compliance of above legal requirement by the political parties is already pathetically poor which is not more than 50% with no serious penal action affecting their functioning.
Section 80GGB was a new insertion in the Income-tax Act, 1961. This enables Indian companies to get full deduction in their income-tax assessments for contributions made to political parties. Interestingly, there is no ceiling fixed on the amount of such contribution. Section 80GGC gives similar deduction for non-company taxpayers. Advertisements in souvenirs published by political parties would also be eligible for deduction. For this purpose, the term “political party” means a political party registered under section 29A of the Representation of the People Act, 1951.
What justifies allowing unlimited amount of donation to political parties as an expense whereas there are several restriction for giving donations to other charitable trust and Non profit companies under section 80 G of Income Tax.Thus political parties commands undisputed higher meritorious status than the charitable outfits dedicated to some noble cause and enjoy permanent immunity from Income tax as well.
AMENDMENTS PROPOSED IN BUDGET 2017
In order to discourage the cash transactions and to bring transparency in the source of funding to political parties, it is proposed to amend the provisions of section 13A to provide for additional conditions for availing the benefit of the said section which are as under:
(i) No donations of Rs.2000/- or more is received 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 electoral bonds,
(ii) 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 section 139.
Further, in order to address the concern of anonymity of the donors, it is proposed to amend the said section to provide that the political parties shall not be required to furnish the name and address of the donors who contribute by way of electoral bond.
The seriously interested folk in Government for bringing genuine reform would –
1) Ban any cash payment of even a rupee to any political party. When we are advocating that our milk man, vegetable vendor, tax driver and so on should be paid digitally so why not Political party who are not even covered under ESSENTIAL SERVICES ACT.
2) Make the income of every political party subject to Income tax provisions with immediate effect like any commercial outfit. At best they can be given liberal deductions for certain valid expenses.
3) The requirement of furnishing annual return of donations with Election Commission, An Independent watch Dog having teeth as well from the constitution of India for political parties before filing Income Tax Return MUST be maintained. The position of Election Commission MUST be made more independent with irrevocable powers.
4) There MUST be a maximum ceiling for any company can donate to political party(s).
5) Any violation wilful or not wilful by the political party would empower election commission to cancel the registration of political party.
6) There are several other non fiscal reforms which are also over due for cleansing the electoral system in India. That is not the scope of this article thus they are not dealt with.
Anything lesser than is not going to treat the cancer of corruptions widely rampant in political parties which is a mother of all corruption.
CONCLUSION – The proposed amendments for political funding is not well intentioned as it is going to further facilitate the acceptance of donation from anonymous sources by keeping it’s details away from the purview of Election Commission.
We have witnessed similar experience during the experiment of demonetisation done with 1.3 billion Indians in one go where political parties grossly abusing the exemption under income tax by acting as one of the big time money changers.
We cannot expect cleansing of corruption from other economic activity sphere when the controller of it has prospered to it’s existing powerful position by riding on the road of corruption made of black money from anonymous sources.
There was an urgent need for doing major surgical strike on political funding and what has been given is stale coloured pill not meant for this ailment thus leaving the disease (Black Money) to advance to its next higher critical stage for fulfilling the aspirations of certain select class of people.
Do you think CBDT should extend Tax Audit Report and relevant ITR Due Date? Please Comment, Vote, Retweet and Like.— Tax Guru (@taxguru_in) September 18, 2018