Political parties must file ITR by December or lose tax exemption status: Govt

New Delhi: After capping anonymous cash donations to political parties at Rs 2,000, the government is amending law to make it mandatory for them to file returns on income by December every year or risk losing tax exemption status.

It is also changing the law to keep the identity of the donor confidential who buys the just-introduced electoral bonds from banks to make such donations.

In an interview, Revenue Secretary Hasmukh Adhia said political parties as per law enjoy exemption from payment of income tax, but half of them do not file income tax returns (ITR) on time.

To promote transparency in political funding, the Budget for 2017-18 seeks to amend law through the Finance Bill by making it mandatory for them to file returns by December end for any assessment year. For example, for assessment year 2018-19 (fiscal year beginning April 1, 2017), returns will have to be filed by December 31, 2018.

"They (political parties) will lose the exemption status if they do not file ITR by December-end. We will give a notice and cancel their exemption status. Through this, strictest discipline will come. Our experience is, for last two years, more than 50 per cent parties are not filing ITR on time. These are smaller parties which do not bother to file returns," Adhia said.

He said these parties will now have to file their audited returns by December or risk losing the exemption status. "Right now, many political parties file their tax returns very late after 2-3 years. Because there is a provision in the law that you can file late returns but you won't get expenditure allowances if you file late. Now, we are saying whatever is the time limit, within that time limit they have to file I-T returns.”

"And the time limit for trusts and political parties is December of the assessment year. Once the financial year is over within 9 months, you will have to file audited ITR," Adhia said.

The government will amend the Representation of People Act to ensure secrecy of the electoral bond buyers, soon notify the banks that will be eligible for issuing such bonds and come out with guidelines for the same by March.

"Amendment to the RBI Act and the I-T Act is already there in the Finance Bill. There is an amendment which we are making in the Representation of People Act which is in the Finance Bill. RPA says all donations above Rs 20,000 will have to be given to the Election Commission with the name and address. The anonymity will be lost there. So, we have to amend that section also," he said.