Income Tax Department Sends Notices to Taxpayers Over Donations to Unrecognized Political Parties

The Income Tax Department (IT) has sent notices to a number of taxpayers who made donations to political parties that are registered but not recognised by the Election Commission of India. The notices sent to individuals and corporations are for donations made in the Financial year 2021-22 to find out whether such payments to lesser-known political parties were used to evade tax and launder money, said people aware of the details, reported by Economic Times.

"So far, about 5,000 notices have been sent for FY21 and FY22. We will be sending more notices in the coming days," a senior official told ET. The donations were made to about 20 registered but unrecognized political parties, the official told the Economic Times.

Taxpayers can claim a 100% deduction for donations to a registered electoral trust or political party. This is subject to the total deduction not exceeding the individual's total income. Donations did not match declared income, and it is suspected these parties may have returned some of the amounts in cash, said the official cited above. "We have sent notices where the donation was not in proportion to income," a senior official said. 

In some cases, taxpayers have donated up to 80% of their income to a political party that's not even properly registered. Registered political parties are considered unrecognized if they have not contested or haven't secured a qualifying vote. The department sent similar notices last year, too, resulting in updated returns.