Donors to RUPPs Face Tax Deduction Scrutiny
The Income Tax Department is scrutinising taxpayers who claimed deductions under Sections 80GGC/80GGB by donating to Registered Unrecognised Political Parties (RUPPs). These taxpayers are now receiving show-cause notices questioning the validity of their deductions.
What’s Triggering the I-T Notices?
The scrutiny began after investigations revealed that certain RUPPs returned most of the donation amounts to donors, after deducting a commission. These parties confessed to these fraudulent practices, prompting the department to assess if the deductions should be disallowed.
Key Case Findings
In September 2022, the Income Tax Department raided:
- 23 RUPPs offices
- 35 intermediaries
- 3 exit providers
These raids uncovered a scam where donations were falsely claimed as deductions and then routed back to the donors via cash, RTGS, or NEFT. Commissions ranging from 4.5% to 5% were charged during these transactions.
Legal Framework: Sections 80GGC and 80GGB
- Section 80GGC: Allows individuals to claim deductions for contributions to political parties.
- Section 80GGB: Allows companies to claim deductions for similar contributions.
However, these deductions are only valid if the political party is registered with the Election Commission of India (ECI) and follows lawful practices.
Implications for Taxpayers
Taxpayers who donated to these RUPPs will need to respond promptly to the show-cause notices. Failure to justify these deductions may result in:
- Disallowance of Deductions: The claimed deduction under 80GGC/80GGB will be scrapped.
- Penalties: Additional penalties for claiming false deductions.
- Tax Demand Orders: Orders could be issued before the end of March, based on departmental findings.
Expert Opinions
Chartered accountants advise taxpayers to respond carefully. If contributions were made in good faith to registered parties, donors might still have a chance to defend their claims.
An official from the I-T Department stated:
“Some RUPPs were involved in scams, which their office-bearers confessed to. Notices are being sent to donors to explain why their deductions should not be disallowed.”
Who are RUPPs?
Registered Unrecognised Political Parties are:
- Newly registered parties.
- Parties that haven’t met vote percentage criteria in elections.
- Parties that have never contested elections since registration.
How to Respond to the Notice?
- Verify Documentation: Ensure you have proof of contributions.
- Consult a Tax Advisor: Seek help from a qualified tax consultant.
- Respond Promptly: Submit replies before the deadline specified in the notice.