The crackdown highlights the need for taxpayers to exercise caution while claiming deductions for political donations. As investigations continue, the department’s findings could lead to stricter scrutiny of such claims in the future.
Taxpayers who have donated to Registered Unrecognised Political Parties (RUPPs) and claimed deductions under Sections 80GGC and 80GGB of the Income Tax Act are now receiving show-cause notices from the Income Tax Department. The department is questioning the validity of these deductions, citing admissions by some RUPPs that a significant portion of the donations was returned to donors after deducting a commission.
Income Tax Department Cracks Down on Suspected Fraud
According to an official from the Income Tax Department, several RUPPs were implicated in scams uncovered during investigations. “Office bearers of these parties have confessed to fraudulent practices, prompting ongoing assessments and the issuance of show-cause notices to taxpayers who claimed deductions,” the official stated. The department aims to resolve these cases and issue orders by March-end.
Chartered Accountants Advise Timely Responses
Sulabh Padshah, a Chartered Accountant, emphasized the importance of prompt responses to these notices. “Taxpayers must submit detailed replies to defend their claims. We anticipate that the department will expedite decisions in this matter,” he said.
Donors Defend Contributions
Donors have maintained that their contributions were made to officially registered political parties listed with the Election Commission of India (ECI). They argue that their actions adhered to the law and should not be penalized.
Extensive Raids Reveal Fraudulent Practices
In September 2022, the Income Tax Department conducted extensive raids across Gujarat, targeting 23 RUPPs, 35 intermediaries, and three exit providers. A reliable department source revealed, “These operations uncovered a widespread scam involving fraudulent political donations. The funds were later funneled back to donors through cash, RTGS, NEFT, or other banking channels.”
The raids were triggered by compelling evidence indicating that certain RUPPs facilitated bogus deductions under Sections 80GGC and 80GGB. These deductions were allegedly part of a scheme where commissions ranging from 4.5% to 5% were charged before the donations were returned to the donors.
Understanding RUPPs and Their Role
RUPPs include newly registered political parties, those that failed to secure enough votes in elections to qualify as state parties, and entities that have never contested elections. The fraudulent practices confessed by some office bearers in Gujarat have brought the spotlight on the misuse of political donation provisions for personal gain.
Implications for Taxpayers
The crackdown highlights the need for taxpayers to exercise caution while claiming deductions for political donations. As investigations continue, the department’s findings could lead to stricter scrutiny of such claims in the future.
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