The Income Tax Department is investigating individuals who have made political donations of ₹5 lakh or more to lesser-known political parties in FY 2020-21. Tax officials have sent a list of questions to these donors to scrutinise their donations and ensure they are legitimate.
In some cases, donors gave money via cheque, but the same amount was returned in cash, making it resemble money laundering. A commission of 1-3% was reportedly taken for these transactions.
Under Section 80GGC of the Income Tax Act, individuals can claim full tax deductions for donations to political parties. There is no upper limit for such donations. In FY 2020-21, nearly 9,000 individuals donated ₹5 lakh or more and claimed tax exemptions.
Recently, the Income Tax Department warned that donations under Section 80GGC could be investigated. Salaried taxpayers were especially advised to keep records of donations made in the past 3 years.
Section 80GGC allows 100% tax deduction for donations to political parties. However, some taxpayers have exploited this section by receiving the donated money back in cash after deducting a commission, which led to tax evasion.
As a result, the Income Tax Department has started sending summons under Section 131(1A) to individuals whose donations seem suspicious. Taxpayers must provide detailed information about their profession, bank accounts, income sources, and donations.
The summons are sent to those who have claimed deductions under Section 80GGC in FY 2020-21. The department is particularly interested in individuals who have claimed deductions disproportionate to their income. Some individuals have claimed deductions exceeding 50% of their income.
If you receive a summons, do not panic. It is not an assessment notice. Respond by filing a detailed reply with supporting evidence and justification for the donations.
If your response is not convincing, the department may reopen the assessment under Section 148 and levy taxes, interest, and penalties of up to 200%. For voluntary compliance, taxpayers can file an updated return under Section 139(8A) and pay the applicable additional tax (maximum 70%) instead of the 200% penalty.
If you receive a summons from the Income Tax Department regarding your donations under Section 80GGC, here are some steps you can take:
By following these steps and being proactive in your approach towards addressing any concerns raised by authorities regarding your donation claims under Section 80GGC ,you can effectively navigate through this process while minimizing potential repercussions.
To avoid potential tax scrutiny, people who have claimed tax deductions for making political donations should maintain all of their records. Incorrect donation claims could lead to significant legal repercussions and penalties. If an error was made, prompt correction is advised.
Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. This does not constitute a personal recommendation/investment advice. It does not aim to influence any individual or entity to make investment decisions. Recipients should conduct their own research and assessments to form an independent opinion about investment decisions.
Investments in the securities market are subject to market risks. Read all the related documents carefully before investing.
Published on: Apr 4, 2025, 9:20 AM IST
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