Finance Minister Nirmala Sitharaman recently concluded her pre-Budget meetings with different stakeholder groups. Usually the groups plead for concessions such as tax breaks, revision of import duties, etc. However, there are some groups that have been exempted from income tax all along without any justification.

Under Section 13A of the Income Tax Act, political parties need not pay any income tax, even though they earn crores of rupees as donation.

A party has to just fulfil some conditions to enjoy this benefit. The party must maintain proper books of accounts and other documents to enable the assessing officer (AO) to properly deduce its income. When the contribution exceeds ₹20,000, then the name and address of the person who has made such contribution should be maintained. The accounts should be audited by an accountant as stipulated. Also, there are conditions for registration of the political party and submission of report as per the Representation of the People Act, 1951.

Nowadays, any political party is run like a corporate set-up. When a salaried person with income of more than ₹2.5 lakh is made to pay tax, why a political party with crores of rupees of income does not pay tax?

Growing income

The Bharatiya Janata Party’s income in 2019-20 jumped almost 50 per cent to ₹3,623 crore from ₹2,410 crore in 2018-19. The Indian National Congress had a total receipt of ₹682 crore in 2019-20. Even regional parties get a good amount of income every year. In 2017-18, the Samajwadi Party topped the list of regional parties with an income of ₹47.19 crore, followed by the DMK (₹35.748 crore) and the Telangana Rashtra Samithi (₹27.27 crore).

But getting our lawmakers to tax political parties will be a tough task as this is one area where both the ruling and opposition parties are united.

Recently, the BJP started an email campaign seeking ‘micro donation’ through the NaMo app, which shows how corporate-like political parties are run.

As per Section 10(1) of the Income Tax Act, agricultural income shall not be included while computing the total income of a previous year of any person. This provision is a convenient tool for people not only to avoid paying tax but also to declare all illegal gratifications under the head of agricultural income.

In the Maharashtra municipal elections some years back, many contestants declared wealth of over ₹1 crore, and showed this wealth as being derived from agricultural income. Sometime back it was reported that the daughter of a powerful politician declared more than ₹100 crore income from a 10-acre farm.

In a white paper on black money released in May 2012, the Central Board of Direct Taxes admitted that “giving credit to agricultural income for income-tax purposes without verification of claim allows an avenue for bringing black money into the financial system as agricultural income.”

In 2014, the Tax Administration Reforms Commission report stated emphatically that “agricultural income is exempt from taxation in spite of large agricultural holdings … a large number of rich farmers, who earn more than salaried employees in the cities, get away with paying no tax in view of the government’s lack of will to consider an agricultural income-tax.”

In 2019, the Comptroller and Auditor General of India found that the Income Tax Department did not adequately verify whether ₹500 crore declared as agricultural income was actually from agricultural sources, and allowed the applicants to get tax benefit. The CAG studied the income-tax returns of 6,778 applicants and found that in 1,527 cases (22 per cent), the documentation provided was inadequate. In 716 cases, land records were not available. In another 1,270 cases, proof of agricultural income such as ledger accounts, bills and invoices were not available.

Successive governments have shied away from taxing agriculture income for electoral reasons. A beginning must be made to at least tax agricultural income of ₹25 lakh and above — that is, ten times the exemption of the salaried class.

The writer is a retired banker

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