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Explainer: Is income tax levied on political parties, if not then why is there demand from Congress?

Do political parties in India have to pay income tax? If not, then why is Congress alleging that an income tax demand of Rs 210 crore has been made from it? What does the Income Tax Act say about this? You will find answers to all these questions here…?

‘We are not even able to get posters printed, our accounts have been frozen’… When Congress President Mallikarjun Kharge said this in a press conference on Thursday, the anger inside him was clearly visible. This is the first major attack on the current government by the Congress after the announcement of Lok Sabha elections. Congress alleges that the Income Tax Department has sealed about 11 accounts of it and its affiliated organizations. A dispute related to this is going on in the Income Tax Appellate Tribunal (ITAT), and the Income Tax Department has withdrawn more than Rs 65 crore left in his account.

In such a situation, the question arises whether political parties in India really have to pay income tax? If not, then to what extent do they get exemption from income tax? Why has demand for income tax been made from Congress despite exemption from general tax? What are the provisions of the Income Tax Act in this matter? Let us tell…

Understand Section-13A of Income Tax

When a common man or a corporate company pays income tax, they get exemption from income tax under many different sections. Like 80-C, 80-D etc. Similarly, Section 13A of the Income Tax Act tells about the tax liability of political parties in the country. This section provides 100% exemption from income tax to all political parties registered under Section 29A of the Representation of the People Act in the country.

Political parties get this exemption on all types of income, such as interest, dividend, rent of house or property, donations collected from people, etc. Parties have to maintain details of every person or company who donates more than Rs 20,000. At the same time, parties cannot accept cash donations more than Rs 2,000 per person. In this, it is not mandatory to keep the information about donations received through electoral bonds handy.

But there is a condition with this. That is, political parties have to submit the audit report of their accounts to the Election Commission, while returns of income have to be filed in the Income Tax Department. The provision for this is where Congress is stuck. That year, its MLAs and MPs donated one month’s salary to Congress, which amounts to a cash donation of around Rs 14.49 lakh.

Congress case and income tax issue

While Section 13A of the Income Tax Act exempts political parties from income tax, it also ensures that political parties file tax returns on time. Every political party appoints a treasurer to look after its accounts. It is his responsibility to submit the party’s return by the due date.

Under Section 139(4B) of the Income Tax Act, he has to file a return, while under Section 29C of the Representation of the People Act, he has to submit the report of accounts to the Election Commission. Otherwise, the political party does not get the tax exemption for that financial year, and the political party also has to pay the same tax rate that is applicable on the common citizen of the country.

This is where Congress’s matter is complicated. The Income Tax Department has sent a notice to Congress for the financial year 2017-18, when there was a delay in filing income tax returns by the party. Income Tax Department has generated a demand of Rs 210 crore. This tax demand has been challenged by Congress in ITAT, on which ITAT, while conducting preliminary hearing, ordered Congress to maintain Rs 115 crore in the account till the decision in the matter is taken.

However, now Congress alleges that in the name of recovery, the Income Tax Department has withdrawn Rs 65 crore lying in its account. Freezing his accounts just before the elections is an ‘attack on democracy’. Congress Treasurer Ajay Maken says that the Income Tax Department has sent him a separate notice for 1993-94. Sitaram Kesari was the treasurer then.

Now it remains to be seen what decision ITAT takes in this matter.

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