The Central Board of Direct Taxes (CBDT) chairman is likely to be summoned by the Election Commission (EC) for a response on the board?s alleged inaction in notifying a new accounting system for political parties.
The commission with the help of the Institute of Chartered Accountants of India (ICAI) has finalised a new accounting system for political parties and wants this to be notified by CBDT immediately so that the changes could be implemented ahead of the coming elections in five states. There is a fear that without proper books of accounts, it would be difficult for the commission to curb the flow of black money into electoral politics.
?The EC is issuing a fresh letter in this regard to the CBDT. If there is no response from them, we would ask the CBDT chairman to appear before the commission and explain the reasons for the delay (in notifying the accounting system for political parties),? a government source told FE.
The commission has already written several letters to the income tax department for notifying the accounting system. Political parties are required to maintain records of donors for amounts over R 20,000. However, there is no format for such records, which means data could be incorrect or incomplete. Donations are tax-exempt, provided parties disclose funding details and file returns.
According to the revenue department data, out of 1,200 registered parties, around 800 do not file tax returns. While national and other major political parties file their returns regularly, many small parties do not. Therefore, EC has asked the finance ministry to withdraw the tax exemptions to such parties.
The current cap is set at R40 lakh per candidate for elections to Parliament and R16 lakh for state assemblies. Independent reports say these caps are routinely breached.
?Our mandate to check election related expenses starts from the day candidates file their nominations. However, it is seen that parties start spending much before this stage, creating difficulties in keeping tab on election related expenses,? said a commission official.
The tax department, however, feels that since most of the income generated by political parties is tax-exempt, there is no need for the revenue department to outline accounting norms for them. A finance ministry official said that the tax department monitors flow, if any, of illicit money in the electoral system.
Beyond that, the Income Tax Act, 1961, exempts incomes of a political party chargeable under the head ?income from house property? or income from other sources or capital gain or any income by way of voluntary contribution received by it from any person.
