Income Tax Department Unearths ₹5,500 Crore Donations Racket

Income Tax Department Unearths ₹5,500 Crore Donations Racket

Issue: The Income Tax (IT) Department conducted a nationwide investigation into Registered Unrecognised Political Parties (RUPPs) to expose a large-scale tax evasion and money laundering scheme involving bogus political donations.

Facts:

• A nationwide investigation was conducted into Registered Unrecognised Political Parties (RUPPs).
• The probe unearthed a racket involving bogus political donations exceeding ₹5,500 crore routed through 36 shell parties over three years.
• The scheme involved over 1.6 lakh suspicious donors.
• On July 14, the department conducted coordinated action across more than 150 premises linked to RUPPs, intermediaries, and professionals, exposing 1.53 lakh income-tax returns claiming bogus deductions worth ₹4,478 crore.
• The majority of the RUPPs (over 85%) failed to file mandatory financial documents and were found to be non-existent at their registered addresses.

Decision:

The Income Tax Department successfully exposed the racket, establishing that the scheme resulted in massive losses to the exchequer and involved the intentional structuring of transactions to evade tax.

Key TakeDowns:

• Modus Operandi (Round-Tripping): The primary scheme involved round-tripping of funds, where money donated to these shell RUPPs was returned in cash to the original donors after deducting a commission (typically 1-3%).
• Tax Evasion Mechanism: The donors falsely claimed tax deductions under Section 80GGC of the Income-tax Act for these bogus political donations, resulting in a direct loss of tax revenue.
• Evasion Strategy: Transactions were intentionally structured below the reporting threshold (e.g., ₹4,99,997 and ₹9,99,999) to avoid scrutiny under the Statement of Financial Transactions (SFT) norms.
• Intermediaries and Money Laundering: The RUPPs were centrally controlled by intermediaries, and large cash withdrawals (₹1,290 crore from just three conduit entities) and outward remittances (₹665 crore) were detected, suggesting money laundering and cross-border hawala activity.