The mystery of tax exemptions for political donations

It is high time we file RTIs en masse to inquire about tax exemptions in the area of Electoral Bonds

Finance Minister Nirmala Sitharaman has presented her last full-scale budget. Many citizens are wondering which income tax regime is more favourable to them -- the new regime without exemptions or the older one with exemptions. Strangely, though, it no longer seems fashionable to discuss the amount of revenue that the Union government foregoes by allowing various categories of assessees partial or total exemption from paying corporate tax or income tax.

Rechristened in 2015-16 as the “revenue impact of tax incentives” granted to taxpayers, there is a section that publicly discloses how much revenue the government foregoes. In the latest Receipt Budget, a total of Rs 2.11 lakh crore is shown as the revenue foregone on account of various tax exemptions claimed during the year 2020-21. This figure is estimated to rise to Rs 2.36 lakh crore in 2021-22. Beyond the exemption-wise amount of revenue foregone, little else is publicly known.

Why should we be concerned? Let us take the case of political parties. Under the Income Tax Act, taxpayers are entitled to claim 100 per cent exemption for the amount donated to political parties directly or through electoral trusts. The Receipt Budget gives the revenue foregone figures on account of such exemption claimed by corporates, firms, individuals, and Hindu Undivided Families (HUF). It is difficult to make sense of this data in light of the donation figures declared in the audit reports of political parties submitted to the Election Commission of India.

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For example, in 2015-16, 43 political parties declared receiving donations to the tune of Rs 714.21 crore. According to the Finance Ministry, the revenue foregone for that year on this account was Rs 84 crore. In other words, revenue forgone is 11.76 per cent of the value of such donations. This figure rose to 16.72 per cent in subsequent years and reached 30.64 per cent in 2018-19. In that year, 49 political parties declared receiving Rs 4,050 crore as donations while the government pegged the revenue foregone at almost Rs 1,240 crore. What is the formula for calculating the revenue impact of this tax exemption? It is not explained anywhere. Who claimed exemption for how much donated, is also a sarkari secret.

Since June 2022, I have attempted multiple RTI interventions to seek clarity about these public interest matters. First, I asked the CBDT for the number of taxpayers in various categories who had claimed exemption for donations to political parties. This RTI eventually reached the Central Processing Centre (CPC) in Bengaluru, which handles all I-T Returns. The CPIO replied that the information is not available in the desired format. When challenged in appeal, the CPIO altered her reply stating that the entire process is “automated” and therefore a technical team would be required to extract the data, and even if it were retrieved, it would not be feasible to download it into a manually readable form. Duh!

Another RTI intervention was made with the Department of Revenue seeking similar information, along with the revenue foregone calculation methodology. That RTI also got shunted several times before landing at the CPC. The CPIO sent a carbon copy of her revised reply to the other RTI, after changing the date. A portion of that RTI was also transferred to the Department of Economic Affairs. A third RTI application has been made inquiring about its fate as the DEA did not reply. This latest RTI stands transferred to -- believe it or not -- the CBDT!

It is high time we, as concerned citizens, file RTIs en masse to inquire about the manner in which tax exemption is granted to corporate and individual donors, especially in the era of Electoral Bonds, where the buyer’s identity is treated as a State secret.

(Venkatesh Nayak wakes up every morning thinking someone somewhere is hiding something)