Transparency in Electoral Funding
The existing provisions of section 13A of the Act, inter-alia provides that political parties that are registered with the Election Commission of India, are exempt from paying income-tax. To avail the exemption, the political parties are required to submit a report to the Election Commission of India as mandated under sub-section (3) of section 29C of the Representation of the People Act,1951 ( 43 of 1951) furnishing the details of contributions received by a political party in excess of Rs.20,000 from any person. However, under existing provisions of the Act, there is no restriction of receipt of any amount of donation in cash by a political party.
Secondly, a political party is also required to file its return of income under section 139(4B) of the Act, if its income exceeds the maximum amount not chargeable to tax (without considering the exemption under section 13A). However, filing of the return is not a condition precedent for availing exemption under the said section.
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 .
This amendment will take effect from 1st April, 2018 and will, accordingly, apply in relation to assessment year 2018-19 and subsequent years.
Extract of relevant clause from Finance Bill, 2017
Amendment of section 13A.
11. In section 13A of the Income-tax Act, with effect from the 1st day of April, 2018,— 10
(I) in the first proviso,—
(i) in clause (b),—
(A) after the words “such voluntary contribution”, the words “other than contribution by way of electoral bond” shall be inserted;
(B) the word “and” occurring at the end shall be omitted; 15
(ii) in clause (c), the word “; and” shall be inserted at the end;
(iii) after clause (c), the following clause shall be inserted, namely:—
‘(d) no donation exceeding two thousand rupees is received by such political party 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 bond.
Explanation.––For the purposes of this proviso, “electoral bond” means a bond referred to in the Explanation to sub-section (3) of section 31 of the Reserve Bank of India Act, 1934.’;
(II) after the second proviso, the following proviso shall be inserted, namely:—
“Provided also that such 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 25 under that section.”.