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T. C. A. Ramanujam

Taxpayers have been given the bait of deduction from taxable income contributions made to political parties. But is this justified, asks T. C. A. Ramanujam

Political corruption is the toboggan to national disruption.

John A. Ward

THE Indian-Tax Act is a bizarre piece of legislation. Amendments are made ad-nauseam and every Finance Act carries some 100 amendments. Rules are amended from time to time. Even after the Finance Bill is passed, nobody can be sure that the law as stated in the Finance Act is the final word on the subject. Piecemeal amendments are brought in by various other legislation not exactly in the realm of taxation. This is because of the general feeling that the tax law can be used as a convenient tool for carrying out any and every socioeconomic objective that gives the government political mileage.

New sections have been added in the income-tax law not by the Finance Act, 2003 but by the Representation of the People Act. Amendments to this Act have been made to provide for donations to political parties. Both corporate and non-corporate taxpayers have been given the bait of deduction from taxable income for contributions made to political parties. The company law is also amended for the same purpose. Thus, at one stroke, three enactments have been amended by Parliament without a murmur of debate or discussion.

Section 13A

Section 13A of the Income-Tax Act, 1961 confers exemption to recognised political parties for incomes from house property and other sources and income by way of voluntary contributions. As the Government faced problems on the tax front, the Finance Act, 2003 included capital gains as well for exemption.

Exemption is available if the political party keeps and maintains proper books of accounts and other documents and has a record of contributions with names and addresses of the contributors in respect of donations to the party in excess of Rs 10,000. There is obligation on the party to get the accounts audited. Also, the political party must have been registered with the Election Commission of India.

The amendment made to the Representation of the People Act requires that the treasurer of the political party must file a declaration in respect of donations exceeding Rs 20,000 at a time. Government companies are barred from making contributions to political parties. The party treasurer must file a report of contributions received before the due date for furnishing the return of income under Section 139 of the I-T Act.

The report should be in the prescribed form and submitted to the Election Commission. Section 13A is now amended and tax exemption for a political party is contingent upon the submission of the report by the party treasurer. The Rs 10,000 mentioned in Section 13A has been raised to Rs 20,000. Contributions over Rs 20,000 should be by crossed cheque or draft. Parties can receive any amount below this from any person without submitting the report from the party treasurer.

Sections 80 GGB, 80 GGC

Section 80GGB is a new insertion in the Income Tax Act. This enables Indian companies to get full deduction in their income-tax assessments for contributions made to political parties. There is no ceiling fixed on the amount of contribution. Section 80GGC gives similar deduction for non-company taxpayers.

The implications of these amendments are easy to discern. There has been a debate on state funding of elections. The issue is too complicated and cannot be resolved merely through debates. With elections fast approaching, what better way to help political parties secure funds than alter the tax law?

The deduction allowed for contributions is a tax subsidy and the taxpayer will have to bear the burden of this subsidy. The contributing taxpayer will practically purchase the goodwill of the contesting political parties by making handsome donations.

There is also another angle. There can be arrangements under which the political party chooses to convert unaccounted incomes under the guise of political contributions. Hawala sort of entries can be made for the gain of the taxpayer and the party concerned. Which I-T authority will have the guts to question such hawala arrangements?

All these are being done in the name of cleansing the political process. Parties often bring out souvenirs and advertisements are secured from corporate houses.

There have been Board circulars on allowing such expenditure by way of advertisements in party souvenirs under Section 37. There is a ceiling placed on the expenditure each candidate can incur in the elections and this also requires to be certified. Not a single case of abuse of the ceiling has come to light thus far.

But why not leave the income-tax law alone? And why should Parliament encumber the law with new amendments for obtaining political subsidy for the various parties?

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