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As People Stand In Queues

As People Stand In Queues

As India Incorporated comes to terms with the misery inflicted by the government in the guise of demonetisation, Indian officials and politicians seem to be competing with one another in issuing bizarre statements. The latest one came from revenue secretary Hansmukh Adhia indicating that political parties depositing old notes in banks will not face any investigation from the Income Tax Department.

On the other hand, “if an individual deposits money, the information will come on our radar,” he said. It rubbed salt into the wounds of the general public, which has been facing troubles since November 8, the day when 500 and 1000 rupee notes were declared invalid.

A similar statement was issued by finance secretary Ashok Lavasa that the governments will not scrutinise demonetised notes deposited by political parties in their bank accounts.

The Congress and other political parties which have been opposing the move did not utter a word. The scene would have been entirely different if the celebrated government officials had made a statement like, for instance, that the banks will no longer accept old currency notes with immediate effect.

It seemed all were so satisfied with whatever was being said. It not only reflected the hypocrisy of those who rule but also of those who pretend to be as good as “aam aadmi”.

If we could experience some fury or agitation, it came from a few journalists and people who wrote against the move on various platforms, including the social media.

Before the news could spread as wild fire, the finance ministry immediately sprang into action, with a statement by finance minister Arun Jaitely. In a bid to clear the air, he said that “media reports are misleading”. As the old rupee notes are no longer a legal tender, the political parties cannot accept them as donation.

He said that, like anyone else, the political parties can also deposit the old notes in their banks before December 30, 2016. However, they should be able to explain the source of income and their books should reflect the entries before November 8.

“Political parties have not been granted any exemption post demonetisation and introduction of Taxation Laws (Second Amendment) Act, 2016, which came into force on December 15, 2016. There is no question of sparing anyone and the political class is no exception,” he added.

Now, what are these Income tax provisions? And how is the income of political parties taxed? Under the current provisions, political parties are not under an obligation to disclose the name of people donating less than Rs. 20,000 in cash. In other words, a party can receive as many donations as may be possible in amounts of less than Rs. 20,000 without fearing Income tax officers.

This helps the black money hoarders also. After all nothing prevents a political party from issuing cash receipts of less than Rs. 20,000 and as many as possible and that, too, with a back date.

Not only this, Section 13A of the Income Tax Act gives tax exemption to political parties for income under house property, other sources, capital gain and also income from voluntary contribution received from any person.

Nonetheless, political parties, including the Bharatiya Janata party, have been exploiting the provisions to their advantage. An analysis done by the Association of Democratic Reforms (ADR) and National Election Watch (NEW) during 2013-14 shows that more than 75 per cent of the total income of a majority of the parties, including the BJP and the Congress, came from unknown sources.

In other words, the parties either did not know who the donor was or never wanted to disclose the information. In income tax parlance, this is termed as “black money”, which the parties easily made white, by disclosing the total amount received from unknown sources.

The report shows that the Congress had an unaccounted income of Rs. 3,323 crores, which comes to around 83 per cent of its total income. The figure for the BJP stood at Rs. 2,125 crore, around 65 per cent of its total income.

Though the parties have disclosed a lump sum amount as contribution from unknown sources, the names of the donors are not disclosed in their balance sheets or Income tax returns. Needless to mention, these must be cash donations. As the income is exempt from tax, the parties find it convenient to mention the amount as “income from unknown sources”.

One may recall a burglary that happened at the BJP office, a few years ago, where the party lost around Rs. 2 crore in cash. Now, one can easily understand why the party did not file any complaint in the police station as it would find it difficult to disclose the source of income. Not that the BJP is the only party that thrives on cash. The Income Tax Act containing Section 13A was passed during the Congress regime.

All political parties were given 100 per cent tax exemption on the condition that they would be required to file Income tax returns, maintain proper books of accounts etc.

However, the parties continued to enjoy the exemption albeit without filing the IT returns until 1996 when the Supreme Court directed that all political parties should file their ITRs while responding to a public-interest litigation.

But that was a task half done as the ITRs in those days used to be filed physically. The babus who received the returns not only guarded the information that was filed but seldom asked for any additional information from the political parties.

During 2005, when the Right to Information (RTI) Act, was passed ADR filed a petition for getting access to the income tax returns of the parties. As expected, the IT Department refused to share the details as information of commercial activities pertaining to political parties was not covered under the RTI.

The ADR filed an appeal with the Central Information Commission (CIC) for accessing the information. All political parties filed their objection but CIC directed the income tax department to share the required information with the ADR during 2008. It was certainly a major setback to the parties. In yet another blow, the CIC designated six major political parties, including the BJP and the Congress, as public servants in 2013 under the RTI Act. The Manmohan Singh government tried in vain to set aside the order.

When the Modi Government took over, an RTI activist filed a petition with the Supreme Court. In an affidavit filed with the court, the government said that it had similar views as that of the UPA government.

True, the Modi government did not bring any change in the way political parties are taxed under the Income Tax Act. Till date, no government could find the courage to amend the Act, including the person who has been thumping his 56-inches chest.

If the government could bring changes or propose amendments in the provisions relating to individuals, why could it not think of changing those concerning the political parties?

The finance minister has indirectly indicated in his statement that the political parties can take advantage of the loophole in the demonetisation process by accepting invalidated notes and issuing back-dated receipts of less than Rs. 20,000. Who is actually going to scrutinise their books of accounts? At a time, when the government has been promoting cashless transactions, why are the political parties not under an obligation to accept digital donations?

It was certainly the responsibility of the government to plug all the loopholes, especially the ones which had been exploited for the last 35 years, before hunting for black money. Why should the common man alone suffer while people from the political clan enjoy, throw money at dance parties and organise glittering marriage functions to celebrate the wedding of their sons and daughters? Any answers, Narendra Modiji?

(The writer, a company secretary, is director, communications, Deepalaya and can be reached at

(Published on 26th December 2016, Volume XXVIII, Issue 52)#