Do Political Parties have to Pay Income Tax

What’s in Today’s Article?

• Why in News?
• Are Political Parties Required to Pay Income Tax?
• Are Political Parties Required to File IT Returns?
• What is the Present Case of the Congress?

Why in News?

• Recently, the Congress party alleged that the Income Tax (IT) Department instructed banks to transfer over Rs. 65 crores from the accounts of the Congress, the Youth Congress (IYC) and the NSUI.
• Terming it “economic terrorism”, Congress treasurer (Ajay Maken) said the move came even as the party has its challenge of a Rs. 210 crore tax demand pending before the IT Appellate Tribunal (ITAT).

Are Political Parties Required to Pay Income Tax?

• The Income Tax Act 1961 exempts political parties registered by the Election Commission (EC) under the Representation of the People Act 1951 from paying income tax, with some conditions.
• Section 13-A of the Act (special provision relating to incomes of political parties): It says that any income under the heads of
  • Income from house property,
  • Income from other sources,
  • Capital gains and
  • Income from voluntary contributions shall not be included in the total income of the previous year of the party.
• The above exemption is valid as long as –
  • The political party maintains books of account that would enable the Assessing Officer to “properly deduce its income”;
  • Maintains a record of all contributions above 20,000 each;
  • Has its accounts audited by an accountant and does not accept any donation above 2,000 each in cash; and
  • The treasurer of the party or any other person authorised by the party submits a declaration of its donations to the EC before the due date of filing IT returns.

Are Political Parties Required to File IT Returns?

• Parties are required to file their returns if their total income, before taking into account the exemptions under Section 13A, is higher than the IT exemption limit.
• Section 139 (4B) says that the chief executive officer of every political party furnishes a return of such income of the previous year in the prescribed form, if,
  • The total income exceeds the maximum amount which is not chargeable to IT. 

What is the Present Case of the Congress?

• The Congress’ treasurer said that the IT Department had told the banks where the Congress, IYC and NSUI had their accounts to transfer Rs 65 crore.
  • This was even as the ITAT was hearing the Congress’ challenge against a Rs 210 crore tax demand.
• The IT demand pertains to the financial year 2018-2019.
  • The party had received Rs. 142.83 crore in donations that year and of this amount, Rs. 14.49 lakh was received in cash.
  • This was collected from Congress MLAs and MPs, who contributed one month’s salary each.
• According to the Congress’ treasurer,
  • The party submitted its account details later on February 2, 2019, instead of the deadline of December 31, 2018.
  • The IT Department had raised a demand of Rs.210 crore over just Rs. 14 lakhs in cash donations, just before the 2024 Lok Sabha elections.
• The matter now rests with the ITAT, which completed its hearing and reserved its order.

Q1) What is the Representation of the People Act (RPA) 1951?

The RPA 1951 provides for the conduct of elections to the Houses of Parliament and to the House or Houses of the Legislature of each State, the qualifications and disqualifications for membership of those Houses, etc.

Q2) What is the Income Tax Appellate Tribunal (ITAT)?

ITAT is a quasi-judicial institution set up in 1941 and specializes in dealing with appeals under the Direct Taxes Acts. The orders passed by the ITAT are final, an appeal lies to the High Court only if a substantial question of law arises for determination.

Source: Congress alleges I-T Dept withdrew 65cr from its accounts: Do political parties have to pay Income tax?