NEW DELHI: At a time when millions of people queue up each day to withdraw `2,000 from ATMs, most of which are dry, a clarification by Revenue Secretary Hasmukh Adhia that political parties depositing demonetised notes in their accounts will be exempt from income tax appears to have snowballed into a controversy, with experts stating that the government has opened up a big avenue to allow banks to accept black money.
However, Union Finance Minister Arun Jaitley said political parties haven’t been granted any exemptions after demonetisation and the introduction of the Taxation Laws (Second Amendment) Act, 2016, which came in force on December 15, 2016. “Under Section 13A of IT Act 1961, Political parties have to submit audited accounts, income and expenditure details and balance sheets. Post demonetisation, no political party can accept donations in 500 and 1000 rupee notes since they were rendered illegal tenders. Any party doing so would be in violation of law,” Jaitley 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 explained. “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,” Jaitley said.
That there are 1,900 registered political parties in the country, of which 1,500 have not contested any election between 2005 and 2015, besides the government not yet having acted upon the recommendations of the Election Commission to withdraw income tax exemptions for them, appear hard facts flying into the face of the Narendra Modi-led NDA government, which argues that demonetisation is a step against black money.
Section 13A of the Income-tax Act, 1961 confers tax exemption on political parties for income from house property, voluntary contributions, capital gains and other sources. “We asked the government to withdraw exemptions to over 1,500 parties that never contested elections, besides those that never won any Lok Sabha or Assembly seats. They are mere conduits for black money,” said a senior Election Commission of India official.
Former chairman of the Central Board of Direct Taxes B M Singh told Express, “Such entities often give several names to get away with the conditions specified in Section 13A, besides disclosing donations below the threshold limit. People have the right to know why there are different yardsticks.”
Arguing that there should be no exemptions for political parties when people are forced to stand in long queues, senior Congress leader and former Rajya Sabha MP Rashid Alvi said, “The numerous political parties that have never contested elections become conduits for exchange of demonetised notes.”