If you have donated Rs 5 lakh or more to a lesser-known political party, then the Income Tax Department may also be keeping an eye on you. Recently, tax officials have sent a long list of questions to thousands of individuals who made such donations in the financial year 2020-21.
According to reports, in many cases, the donors gave money through cheques, but they got the same money back in cash, making this process work like money laundering in a way. It is being told that a commission of 1-3% was also taken in such transactions.
Tax exemption on donations and investigation by Income Tax Department
Full tax deduction can be claimed on donations made to political parties, reducing tax liability. Under the current rules, there is no upper limit on donations made to political parties. According to reports, about 9,000 people donated Rs 5 lakh or more in the financial year 2020-21 and claimed tax exemption under Section 80GGC in return.
Recently, the Income Tax Department issued a warning to taxpayers, stating that donations made under Section 80GGC in the ITR may be investigated. Salaried taxpayers were especially advised to keep a record of their donations made in the last three years.
Also read: Under tax radar due to high income and low withdrawals? Here’s how you can avoid tax investigation
Akshay Jain, Partner, Direct Tax, NPV & Associates LLP, said, “Under Section 80GGC of the Income Tax Act, an assessee can claim 100% deduction of the donation made to the political parties. Assessees used to take the benefit of this Section and used this section for reducing the taxable income. However, it was discovered by the revenue authorities that this was used by assessees for claiming wrongful deduction and evading taxes. Assessees used to give donations to the political parties, and the amount was returned back to them in cash after deducting the commission. When revenue authorities came to know of this loophole, they had sent messages and emails to these assessees reminding them to file updated return and pay the taxes that has been evaded previously.”
Now the Income Tax Department has started sending summons under Section 131 (1A) to such taxpayers whose donations seem suspicious. In the summons, taxpayers have been asked for detailed information about their profession, bank accounts, source of income,
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