A Comprehensive Analysis of Tax Provisions for Political Parties and Electoral Trusts: From Income Tax Act, 1961 to Income Tax Bill, 2025

Clause 12 Incomes not included in total income of political parties and electoral trusts.

Income Tax Bill, 2025

1. Introduction

The Income Tax Bill, 2025 introduces significant changes to the taxation framework for political parties and electoral trusts through Clause 12 read with Schedule VIII, which essentially consolidates and modifies the existing provisions u/s 13A and 13B of the Income Tax Act, 1961. This analysis examines the evolution and implications of these provision

2. Objective and Legislative Intent

The primary objective of these provisions is to:

• Provide tax exemption to legitimate political funding
• Ensure transparency in political donations
• Maintain accountability through proper documentation and audit requirements
• Promote clean political funding through regulated channels

3. Structural Changes and Consolidation

3.1 Framework Reorganization

The Bill consolidates the provisions of Sections 13A and 13B into a single clause (Clause 12) with detailed conditions specified in Schedule VIII. This structural change provides better organization and clarity compared to the existing scattered provisions.

3.2 Tabular Format Introduction

Schedule VIII introduces a tabular format with four columns:

• Column A: Serial Number
• Column B: Income not to be included
• Column C: Eligible persons
• Column D: Conditions

4. Key Changes

4.1 For Political Parties

Income Categories Covered:

• Existing Act: Specifically mentions income from house property, other sources, capital gains, and voluntary contributions
• New Bill: Maintains the same categories but presents them in a more structured manner

Key Conditions:

1. Documentation Requirements:

• Both versions mandate proper books of account maintenance
• Requirement for maintaining records of contributions exceeding Rs. 20,000 continues

2. Donation Limits:

• The Rs. 2,000 cash donation limit is retained
• Acceptable payment modes expanded to include:

* Account payee cheque

* Account payee bank draft

* Electronic clearing system

* Other prescribed electronic modes

* Electoral bonds

4.2 For Electoral Trusts

Distribution Requirements:

• Maintained at 95% of aggregate donations
• Includes surplus from previous years
• Must be distributed to registered political parties

5. Notable Modifications and Additions

5.1 Compliance Requirements

The Bill introduces more stringent compliance requirements:

• Mandatory filing of returns within specified deadlines
• Explicit linking with Section 29C (3) of Representation of People Act, 1951
• Enhanced audit requirements

5.2 Penalty Provisions

• New provisions for taxation of exempt income if conditions are not met
• Clear specification of consequences of non-compliance

6. Practical Implications

6.1 For Political Parties

• Enhanced documentation requirements
• Stricter compliance timeline
• Greater transparency in donation tracking
• More structured reporting format

6.2 For Electoral Trusts

• Clearer operational guidelines
• Specific distribution requirements
• Enhanced monitoring mechanism

7. Comparative Analysis

7.1 Improvements over Previous Provisions

• Better organization of provisions
• Clearer conditions and requirements
• Enhanced transparency measures
• More comprehensive compliance framework

7.2 Areas Requiring Clarity

• Implementation mechanism for electronic modes
• Interpretation of "other documents"
• Scope of prescribed electronic modes

8. Conclusion

The Income Tax Bill, 2025 represents a significant evolution in the taxation framework for political funding. While maintaining the core principles of the existing provisions, it introduces better organization, clearer conditions, and enhanced compliance requirements.

 

Full Text:

Clause 12 Incomes not included in total income of political parties and electoral trusts.

 

Dated: 26-2-2025