Crackdown on Fake Political Donations under Income Tax Act

Crackdown on Fake Political Donations under Income Tax Act

The Income Tax (I-T) department has initiated a crackdown on fake political donations by sending verification SMSes to individuals claiming deductions under Section 80GGC of the Income Tax Act. This section allows for deductions on donations made to political parties, but the donations must be made through cheque or bank transfer, with cash donations strictly prohibited.

Modus Operandi of Fake Donors

The typical modus operandi of fake donors involves falsely claiming deductions under Section 80GGC. For instance, an individual might claim to have donated ₹10 lakh to a political party to save ₹3 lakh in taxes, even though the donation was never made or was returned in cash. In some cases, the donor and the political party might collude, with the party taking a cut and returning the rest to the donor.

I-T Department’s Response

To counter this fraudulent activity, the I-T department is requiring filers to either prove their claims or file an updated return within two years of the assessment year. Failure to do so could result in additional taxes and penalties.

Consequences of Bogus Claims

If the I-T department discovers bogus claims, the taxpayer will be required to file an updated return, known as ITR-U. The taxpayer will also have to pay a 25% extra of tax and interest owed if the updated return is filed within 12 months, and 50% extra if filed between month 13 and 24. Beyond this period, an updated ITR cannot be filed, and the penalty could be as high as 200% of the tax amount.

Conclusion

The I-T department’s crackdown on fake political donations is a welcome move. It will help to ensure that only genuine donations are eligible for tax deductions, and it will also deter individuals from making false claims.