Changes in electoral funding w.e.f AY 2018-19

By | February 20, 2018
(Last Updated On: February 20, 2018)

CIRCULAR No. 2/2018 Dated 15.02.2018

16. Transparency in electoral funding.

16.1 The provisions of section 13A of the Income-tax Act provide inter alia that political parties that are registered with the Election Commission of India are exempt from paying income-tax. To avail the exemption, the political parties are required to submit a report to the Election Commission of India as mandated under sub-section (3) of section 29C of the Representation of the People Act, 1951 (43 of 1951) furnishing the details of contributions received by a political party in excess of Rs. 20,000 from any person. However, before amendment by the Act, there was no restriction of receipt of any amount of donation in cash by a political party.

16.2 Secondly, a political party is also required to file its return of income under section 139(4B) of the Income-tax Act, if its income exceeds the maximum amount not chargeable to tax (without considering the exemption under section 13A of the Income-tax Act). However, before amendment by the Act, filing of the return was not a condition precedent for availing exemption under the said section.

16.3 In order to discourage the cash transactions and to bring transparency in the source of funding to political parties, section 13A of the Income-tax Act has been amended so as to provide for additional conditions for availing the benefit of the said section which are as under:

(i)No donations of Rs.2000/- or more is received otherwise than by an account payee cheque drawn on a bank or an account payee bank draft or use of electronic clearing system through a bank account or through electoral bonds,
(ii)Political party furnishes a return of income for the previous year in accordance with the provisions of sub-section (4B) of section 139 on or before the due date under section 139 of the Income-tax Act.

16.4 Further, in order to address the concern of anonymity of the donors, section 13A of the Income-tax Act has been further amended by the Act so as to provide that the political parties shall not be required to furnish the name and address of the donors who contribute by way of electoral bond.

16.5 Applicability: This amendment takes effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent assessment years.

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