More than a thousand income tax officials were involved in the raids which targeted more than 20 unrecognized registered political parties suspected of laundering money received as donations, thereby evading tax. Donations totaling more than Rs 2,000 crore are under scrutiny, officials familiar with the matter said.
The raids were carried out in Gujarat, Rajasthan, Chhattisgarh and Uttar Pradesh, among other states.
The Electoral Commission had alerted the Central Board of Direct Taxes and recommended action against political parties that claimed income tax exemptions but flouted the rules, including on filing details of monetary contributions they made. received and updating the address and names of their leaders.
In May, the commission removed 87 entities from the list of unrecognized registered political parties, saying they had been deemed non-existent during a verification process.
According to the officials, during searches at the premises linked to the Apna Desh party in Sultanpur in UP, officials found that he had received donations of Rs 370 crore. They said party chairman Abdul Mabood ran a watch repair business.
In some cases in Gujarat, roles of public accountants are being scrutinized, for allegedly helping employees of certain companies to evade tax by recording donations to little-known entities for a commission of 3 to 5%. The money was returned to donors through hawala operators, said a senior official familiar with the development.
According to the Electoral Commission, income tax exemptions of Rs 445 crore in 2018-19 and Rs 608 crore in 2019-20 were used by 199 and 219 unrecognized registered political parties, respectively. Of these, 66 parties had applied for income tax exemption without submitting contribution reports as required by law, he said in a statement in May.
“Donations to political parties are made mainly in the form of checks and are authorized as a deduction from taxable income. Fake political parties have been formed for this purpose which accept donations in the form of checks, route the money through stratification and eventually withdraw them in cash and return the money to the original donor after charging their commission,” said explained an officer on operations.
“These entities are small parties used to generate cash. Ultimate beneficiaries will be discovered and interviewed,” the official added.
Documents related to false donation receipts, formation of fictitious entities, fictitious and inauthentic purchases, facilitation of entry into housing and other irregularities were discovered during the raids, said a other manager.