New Delhi: The Union government put in place a mechanism two weeks ago to make donors to political parties mandatorily divulge details on the donations they have made. This data, which covers donations made through Electoral Bonds, cash or any other form, will be available only to the government and not made public. 

Though the Supreme Court on February 15 held the Electoral Bonds scheme to be unconstitutional, the government has now set up a discreet route to collect data on the entire spectrum of political donations — from all individuals, corporates and other organisations. 

With this mechanism in place, the Union government, which until days ago advocated for keeping details of political donations hidden from citizens as well as all political parties, will now become the sole repository of granular data on all types of political donations. 

Not even the Election Commission, which is constitutionally mandated to oversee free and fair elections, and operates at an arm’s length from the executive, is permitted by the Union government’s laws to gather such granular data. 

The mechanism is simple: The Central Board of Direct Taxes (CBDT), supervised by the Finance Ministry, has introduced new forms for income tax returns. In these forms, everyone — individuals, corporate houses and other organisations — must report details of political donations in their annual returns to the Income Tax department. Donors aren’t mandated to disclose which party they donated to. But, they are required to disclose how much they donated in cash, cheque or any other form. They must submit details of bank transactions for each donation they make as well. This includes donations made through Electoral Bonds. These new forms are to be used starting with the current financial year (FY23-24) to report details of donations to political parties. 

Under the Income Tax Act, the Income Tax department has powers to match the transaction details with other databases. They can legally ask for information from other government agencies, banks and private bodies, if needed. It is also equipped with the technological tools to cross-match these transactions with other government databases and trace the money to recipients.

“The total amount of deduction (tax exemption on political contributions) has always been collected. Now, more granular details can be collected for example average amount of transaction, highest transaction, etc. The ITR [Income Tax Returns] data may be shared with other law enforcement agencies under the finance ministry,” said a senior government official in the Department of Revenue of the Ministry of Finance. The official did not want to be named.

The Enforcement Directorate is a law enforcement agency that reports to the finance ministry. It has been in the news for alleged selective targeting of the political opposition in India.

“The data from the returns is collected in electronic form by the department. So it is seamlessly shared with the Financial Intelligence Unit, which then shares it with all enforcement agencies,” a retired official of the CBDT said. 

CBDT is the apex government authority which oversees collection of direct taxes such as personal and corporate income tax. And, the Financial Intelligence Unit comes under the Union Finance ministry. This national agency is at the centre of handling information about suspicious financial transactions. It receives, processes, analyses and then shares such information with enforcement agencies.

“To my mind, this (collecting transaction-level data on all kinds of political donations) is an overreach,” he added. 

The Collective sent queries to the Ministry of Finance and the Central Board of Direct Taxes regarding the changes that increase government control over political donation data. We have not received a response yet.

The New Income Tax Forms

“In recent years there was a huge scam of unrecognised political parties through which a lot of money got routed and people claimed deductions by ‘donating’ to these fake entities. So the Income Tax department did conduct enquiries by asking taxpayers for details,” explained the revenue department official quoted earlier. 

“The new ITR forms ask for information only from the taxpayers side. They don’t ask for any information about the political party that has received the donation like the name or the PAN [Permanent Account number issued by the Indian Income Tax department] of the donee. They could have sought this information in a more meaningful way to better identify who the fake political parties are that are using the tax exemptions for illegitimate purposes,” said Chirag Chauhan, a practising Chartered Accountant and auditor.

Political parties have to disclose the amount of donations received to the Election Commission as well as tax authorities.

Donors, until the last financial year, were only required to submit the total amount they spent on political contributions. Political donations in any form, disclosed by the donor, are exempt under income tax law’s Section 80GGC. 

In December 2023, Central Board of Direct Taxes issued a notification mandating the disclosure of political contributions. These are now implemented through the new ITR forms. The notification read, under Section 80GGC, that, “details are to be filled in the drop down to be provided in the e filing utility”. 

Earlier, there was no “drop down” option which asked for transaction details of such contributions. The new Income Tax Returns forms have now confirmed these changes.

In these forms, to be filled with data for the financial year 2023-24, taxpayers need to specify details of contributions to political parties — money donated in cash, and the amount donated through “other mode”, providing additional transaction details such as transaction IDs and cheque numbers.

The Question of Anonymity

The move to disclose specifics of political contributions runs contrary to the claims the Union government had made while announcing the Electoral Bonds in 2018. 

The then finance minister, Arun Jaitley, had said that donors were reluctant to “disclose the details of the quantum of donation to a political party. This was because they feared consequences visiting them from political opponents”. Electoral Bonds, he suggested, would keep the donations undisclosed while discouraging the use of cash to finance political parties.

The Union government argued the same point in the Supreme Court to defend  the use of opaque electoral bonds. It failed to impress the court. The apex court has now directed the Election Commission to disclose details of all donations to political parties through Electoral Bonds after April 2019.

Not that the electoral bonds were entirely opaque. A report by Poonam Agarwal, then with The Quint, had shown that the electoral bonds carried a unique serial number. Investigations by The Reporters’ Collective had revealed that SBI, the largest government-owned bank, insisted on keeping the unique serial number on Electoral Bonds. This allowed SBI to maintain a complete audit trail of who purchased the bonds and which political party encashed them. Further investigations showed that the SBI, which was the sole bank permitted to deal in Electoral Bonds, had previously taken instructions from the Finance ministry to encash bonds for political parties beyond their expiry date. 

So far, political parties have bagged Rs.16,518 crore through Electoral Bonds — a route that has now been shut down by the apex court. Of this, the Bharatiya Janata Party (BJP) cornered  Rs.6,566 crore. BJP has collected more than the next three biggest parties put together, if one was to rank them by money collected through electoral donations. The Indian National Congress (INC) collected around Rs.1,123 crore, All Indian Trinamool Congress collected around Rs.1,093 crore and Biju Janata Dal received around Rs.774 crore through Electoral Bonds.

In 2022-23, the BJP received Rs.1,294.14 crore through Electoral Bonds and Rs.825.92 crore as other forms of donation. INC collected Rs.171.02 crore through Electoral Bonds and Rs.97.60 crore from other donations. With the Electoral Bonds now scrapped, BJP and all other parties would have to depend upon direct bank transfers, cash donations from corporate donors and individuals. They continue to retain access to donations from electoral trusts. 

But, starting with the current financial year, the government will now have details of each of these transactions, disclosed mandatorily by the donor to the income tax authorities annually.