In a bid to clear the air on tax exemption to political parties, Finance Minister Arun Jaitley on Saturday said there has not been any change of law after demonetisation and parties already come under the purview of Section 13A of the Income Tax Act 1961.
The conditional tax exemptions historically given to income of registered political parties continue and no new concession or exemption has been granted either post November 8 demonetisation announcement or in the last two-and-a-half years, he said.
"Post demonetisation, no political party can accept donations in 500 and 1,000 rupee notes since they were rendered illegal tenders. Any party doing so would be in violation of law," he said in a statement.
“Just like anyone else, political parties can also deposit their cash held in the old currency in banks till the 30th of December provided they can satisfactorily explain the source of income and their books of accounts reflect the entries prior to 8 November,” he said.
"If there is any discrepancy in the books or records of political parties, they are as liable to be questioned by the Income Tax authorities as is anyone else. They enjoy no immunity whatsoever," he said. "There is no question of sparing anyone, and the political class is no exception."
“In fact PM Modi is setting a new example of propriety in public life, by asking all MPs & MLAs of BJP to submit their bank account details post demonetization. We would like to urge the other parties to do the same and prove their intentions against corruption," he added.
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," he said.
Under the Income Tax Act, income of political parties is exempt from tax subject to condition that all donations above Rs 20,000 are taken through cheque and lower ones are properly documented with full detail of donors. These accounts also have to be audited.
"Under Section 13A of IT Act 1961, political parties have to submit audited accounts, income & expenditure details and balance sheets," Jaitley said.
In Mumbai, he told reporters that "the legal and taxation regimes for all registered political parties remain as they were 20-25 years ago. Our government has not made any changes to these rules, nor we are planning to make any".
He warned the political parties not to misuse the system. "There is no relaxation in the tax scrutiny of political parties. This is a complete media creation. We will take
strong action against those parties which misuse the system."
Stating that no changes have been made in the law regarding political funding, he said, "Not a single change has been made in the last two months or so, or in the last
two-and-a-half years with regard to taxation of political parties.
"Nothing has been done, whatever was the existing system which has existed for the last 15 years is continuing and if somebody creates a political party for the purpose of channelising funds... obviously law will step in," Jaitley said.
"Income and donations of political parties fall in the purview of Section 13A of the Income Tax Act 1961 & there is no change in its provisions. In this era of instant outrage, a 35-year old law is presented as a new law being passed by the NDA government," Jaitley said in the statement.
Ministry of Finance also issued clarifications on the issue.
“The exemption from Income-Tax is given to only registered political parties subject to certain conditions, which are mentioned in Section 13A, which includes keeping and maintaining books of accounts and other documents as would enable the Assessing Officer to deduce its income therefrom,” the ministry said.
“In respect of each voluntary contribution in excess of Rs. 20000, the political party will have to maintain a record of such contributions along with the name and address of such person who has made such contribution,” it added.
“The accounts of each such political party is to be audited by a Chartered Accountant and the political party has to submit a report to the Election Commission about the donations received within a timeframe prescribed.” The ministry said.
It further said that there are enough provisions in the Income Tax Act to scrutinise the accounts of the political parties and these political parties are also subject to other provisions of Income-Tax, including filing of return.