ELECTORAL REFORMS AND FUNDING OF POLITICAL PARTIES IN CONTEMPORARY INDIA

Introduction

As per Section 29C of Representation of People’s Act (RPA), political parties must prepare a report of donations more than ₹ 20,000 which they receive from any individual or organization in a fiscal year, keep record of donor’s amount, name and address and must publish all this data in a set format in the public domain. Under Section 139 of the Income-tax Act, such a report as mentioned above shall be submitted to the Election Commission of India (ECI) for furnishing return of its income. A political party will not get any tax relief under this act, if it fails to submit said report. Section 13A of the Income Tax Act states that the income of a political party that comes by way of voluntary contributions/donations shall be exempted from tax.

Issue: There is no information available about the actions taken by Central Board of Direct Taxes(CBDT) against parties defaulting to release these contribution reports. An analysis of the donation statements of political parties that are available on public domain shows that in several cases there is incorrect, incomplete or non-disclosure of PAN data. The Finance Act, 2017 introduced electoral bonds, under which donations/contributions received by electoral bonds isn’t mandated to be disclosed in the report that goes to ECI. Maintenance of details of donors of these bonds, isn’t required.

Analysis of the Donation and Income Statements Published by the Parties:

“From 1546 donations in FY 2012-13 to 2015-16, political parties had got ₹ 355.08 crore which didn’t have address information in the contribution form. Out of the total income of 7 top parties in India in FY2016-17, ₹ 710.80 crores were from anonymous sources (sources of income specified in the IT Returns are unidentified) i.e. 45.59% of the entire income of all Indian political parties. The top 4 parties in it, namely INC, CPM, BJP,and CPI did not disclose PAN details of 166 donations from which they collected ₹ 2.86 crores.” Hence, total donations with undeclared, incomplete, or incorrect PAN details amount to hundreds of crores. “The BSP declared that it didn’t receive donations more than ₹ 20,000 in FY 2016-17, as it had been declaring for the last eleven years.” It’s like political parties are asking for a donation of ₹19,999 to escape from declaring the donations, seeing as to make declaration mandatory, the minimum amount should be ₹20,000. There is also a delay of many months after the due date, for submitting audit reports to ECI.

 

Problem Analysis in Light of Recent Developments

No information given by CBDT about action taken against defaulting parties who fail to submit and delay in submission of contribution reports and donation statement. This is a botch to curtail frauds in political funding and inhibits the people from knowing who has contributed, how much and to which political party. Under Section 139 (4)(a) of the Income-tax Act 1961, a political party is required to show all incomes, including donations/contributions from bonds. Still, it’s also not certain if CBDT will get all the details of the contribution in spite of the applicability of these aforementioned sections. Political funding will become opaque by Corporate-Political Nexus which is fatal for democracy. The amendment of Sec. 13A of Income-tax Act in 2017, also stated there’s no necessity to declare record of donations by electoral bonds or details of such donors. This amendment lessened discrepancies of incomplete/incorrect declaration as transactions will be done via electoral bond and would hide the identity as well as the amount donated by the donor.

An amendment to Sec. 13A of Income Tax Act was made in 2017 which states that “political parties shall declare all donations above ₹2,000 to Dept. of Income Tax for getting the tax exemption”. But it didn’t amend Sec. 29 C of the Representation of People’s Act 1951, which states that reports of donations/contributions above ₹20,000 to the political parties shall be declared to the ECI. So, political parties would have to declare all donations received above ₹ 2,000 to the Dept. of Income Tax (Central govt.) to get tax exemptions, but it’s not bound to declare details of the same to ECI. Such donations/funding above ₹2,000 can only be done by the means of net banking, electoral bonds and cheques. But there are not many provisions to take action if incomplete/incorrect information is declared by political parties.

Solutions for these Issues

  1. The orders of the Central Information Commission that deemed political parties to be public authorities under Right to Information (RTI) Act, 2005 should be implemented by the Government and they shall be open for public scrutiny under RTI. To bring CBDT under RTI, by ordinance or amendment in legislature.
  2. Institute of Chartered Accountants of India had made certain suggestions in 2010 to the ECI under its “Guidance Note on Accounting and Auditing of Political Parties” to refine the scheme of auditing followed by Indian political parties. This Guidance Note shall be legalised by an act of the legislature.
  3. During the period of election, to fix the limit on the amount of donations and contribution which can be collected by political parties.Moreover, it’s suggested that the limit is maximum of 5% of the quarterly net profit of a company and maximum of 10% of the annual income of a person to set for the number and amount of electoral bonds that can be issued.
  4. To develop intra-party democracy in the political parties; all financial matters in the party that need filing like contribution reports and donation statements shall be done with consent and supervision of all members of the party.
  5. The Supreme Court (SC) and ECI shall issue guidelines to the Income Tax Department and UIDAI to share the data of tax returns, PAN numbers, and Aadhar details to the ECI, and use technology for verification of incorrect, undeclared, or incomplete PAN details in the contribution reports and donation statements.
  6. To file PILs in the SC in order to scrap electoral bonds scheme or in other case to make the information regarding electoral bonds given to the Election Commission public, which have hitherto remained confidential as directed by the SC in its order regarding electoral bonds. By way of amending the Representation of the People Act in accordance with the Law Commission’s Report 255 by replacing Section 29C with a new Section 29D and inserting new Sections 29E, 29F and 29H in the aforementioned act. This will guarantee transparency, accountability and endow public to make righteous choices about electing their representatives.
  7. Unknown donation equal/above ₹2000 should be prohibited. Political parties should be bound to quarterly publish their accounts, maintenance of such accounts and their auditing to ensure their accuracy and for information of the citizens.
  8. Political parties should be mandated to keep proper accounts in a prescribed format and to audit their accounts by accountants recommended by the Comptroller and Auditor General.

Conclusion

There is vagueness in data of donations declared by political parties in the form of incomplete declaration of data in the donations reports. On September 13th, 2013, the Supreme Court in Resurgence India v. Election Commission of India held that no part of the affidavit of candidate shall be left empty. Likewise, in form 24A that is submitted by political parties to ECI, any part providing details of donations above ₹ 20000, must not have to be left blank. Date on which the funding was done shall be recorded in form 24A. The unfinished contributions reports shall be returned to the parties by the ECI, to daunt them from giving incomplete data.

Currently in the US, France, Bhutan and Japan all details of all donors have to be made accessible for civic inspection. Political parties that fail to submit its donation statements before the due date to the ECI, shall not be tax-exempt. To daunt financing by shell companies, a special department under CBDT shall be made to investigate donation reports of regional and unrecognised parties. This all will go a long way in consolidating democracy, elections and political parties.

LEAVE A REPLY

Please enter your comment!
Please enter your name here

Recent Blogs