After deciding that there should be accounting yardsticks for income streams of political parties, the Election Commission has found it will have to do the job itself as the income tax department has passed the buck back to it.
Recently, the commission wrote to the income tax department to notify accounting systems, which must be maintained by political parties to facilitate proper auditing. This is seen as part of the commission?s efforts to curb the flow of black money into electoral politics.
However, the tax department 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. Besides, it has pointed out that EC is the ?regulator? for political parties as their recognition is decided upon by it. Therefore, the commission should frame guidelines for these parties.
A finance ministry official said that in any case, 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. So, the department has a very restricted mandate in this regard.
Political parties must maintain records of donors for amounts over R20,000. 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.
As per 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. So Nirvachan Sadan has asked the finance ministry to withdraw the tax exemptions to such parties.
A clear accounting system will make it easy for the commission to check if candidates stick to permitted expenditure levels. 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.
A start could be made in this regard by deciding on the system of accounts under which the parties should maintain records. There are three types of accounting systems ? mercantile, cash and mixed. Under the mercantile system, assets and liabilities are reflected in accounts in the period in which they accrue. This means it includes consideration relating to outstanding. In the cash system, assets and liabilities are shown in the period in which actual payment is made, while the mixed system is a hybrid of the two.