Section 13A of the Income Tax Act, 1961 (said Act”), provides a significant exemption concerning political parties and their income. This article delves into the nuances of Section 13A, elucidating its provisions, implications, and broader context within the Indian tax framework.
Section 13A of the said Act [1] primarily deals with the tax exemption granted to political parties on their income. It specifies that any income derived by a political party registered under section 29A of the Representation of the People Act, 1951, is exempt from taxation if certain conditions are met. To qualify for exemption under Section 13A of the said Act:
[1] Special provision relating to incomes of political parties.
13A. Any income of a political party which is chargeable under the head “Income from house property” or “Income from other sources” or [“Capital gains” or] any income by way of voluntary contributions received by a political party from any person shall not be included in the total income of the previous year of such political party:
Provided that—
(a) such political party keeps and maintains such books of account and other documents as would enable the [Assessing] Officer to properly deduce its income therefrom;
(b) in respect of each such voluntary contribution [other than contribution by way of electoral bond] in excess of [twenty] thousand rupees, such political party keeps and maintains a record of such contribution and the name and address of the person who has made such contribution;
(c) the accounts of such political party are audited by an accountant as defined in the Explanation below sub-section (2) of section 288 [; and]
[(d) no donation exceeding two thousand rupees is received by such political party 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 such other electronic mode as may be prescribed] or through electoral bond.
Explanation.—For the purposes of this proviso, “electoral bond” means a bond referred to in the Explanation to sub-section (3) of section 31of the Reserve Bank of India Act, 1934 (2 of 1934):]
[Provided further that if the treasurer of such political party or any other person authorised by that political party in this behalf fails to submit a report under sub-section (3) of section 29C of the Representation of the People Act, 1951 (43 of 1951) for a financial year, no exemption under this section shall be available for that political party for such financial year:]
[Provided also that such 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 that section.]
[Explanation.—For the purposes of this section, “political party” means a political party registered under section 29A of the Representation of the People Act, 1951 (43 of 1951).]
i. Political Party is required to maintain books of accounts and other documents recording details of its income and expenditure. These records must be audited by a qualified accountant.
ii. Political Party must keep and maintain records of each voluntary contribution in excess of Rupees twenty thousand and of the names and addresses of persons who have made such contribution.
iii. No political party must receive donation exceeding Rupees two thousand other than through bank or electronic clearing system or through electoral bond or any other electronic mode as prescribed.
iv. Such political party is mandatorily required to file their Income Tax Returns every year as per Section 139 (4B) of Income Tax Act, 1961 on or before the due date. Along with the income tax return, the political party must submit a report of its audit, duly signed by the auditor, to the Income Tax Department.
v. The political party must be registered under section 29A of the Representation of the People Act, 1951.
It is pertinent to note that the exemption provided under Section 13A of the Act confers several implications and benefits such as:
· Transparency and Accountability: By mandating the maintenance of books of accounts and audit requirements, Section 13A promotes transparency and accountability within political parties. It ensures that their financial transactions are recorded and scrutinized, thereby enhancing public trust.
· Financial Relief: Political parties rely on donations, contributions, and other forms of income to sustain their operations and activities. Exemption from income tax provides them with financial relief, enabling them to allocate resources more effectively towards their objectives.
Despite its intent and benefits, Section 13A has faced criticism and challenges. There have been instances of non-compliance and alleged misuse of tax exemptions by political parties.
Recently, one of the major political party i.e. the Indian National Congress (“INC”) is in news for denial of exemption u/s 13A of the said Act and as a consequence huge tax demand. From the information available in the public domain[1], it emerges that admittedly INC filed its return for assessment year 2018-19 after the due date prescribed u/s 139 (4B) of the said Act. Further, the INC also admitted of receiving cash donation exceeding the threshold limit of Rs. 2,000/-. For the above stated reasons, the Assessing Officer while framing the assessment order denied the exemption u/s 13A of the said Act giving rise to humongous tax demand. Interesting and inexplicably, INC did not even request for stay of demand until the matter travelled to Income Tax Appellate Tribunal i.e. second appeal.
This case can be a case study for the political parties to not ignore the statutory mandate of filing the return on time and comply with other statutory requirements.
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