Political Parties and Funding in India: Sources, Tax Rules and Transparency

Subject: GS 2: Polity and Technology

Context: Association for Democratic Reforms (ADR)’s 2025 analysis highlighted a 223% rise in declared RUPP income in FY2022-23 amid substantial gaps in mandatory financial disclosure.

UPSC Course Fees Online

Key Findings of ADR Report

• Sharp Rise in Income: Declared income of the 739 RUPPs analysed increased from ₹490.22 crore in FY2021-22 to ₹1,581.75 crore in FY2022-23, a 223% rise.

• Major Disclosure Deficit: Of 2,764 RUPPs, only 739 (26.74%) had financial records available for analysis, while 2,025 (73.26%) did not have either audit or contribution reports publicly available.
• Low Overall Compliance: Only 18.13% of RUPPs had submitted both mandatory audit and contribution reports, indicating substantial gaps in financial transparency.
• Concentration of Large Incomes: Only 38 of the 739 RUPPs analysed reported income exceeding ₹1 crore in FY2022-23, while the top 10 RUPPs together reported substantial income over the five-year period FY2019-20 to FY2023-24.

Political Parties and Funding in India

• Political parties are voluntary associations deriving legal protection primarily from Article 19(1)(c), while their registration is governed by the Representation of the People Act (RPA), 1951.
• Provisions for Funding
  • Section 29B, RPA 1951 permits political parties to accept voluntary contributions from persons and companies, subject to statutory restrictions.
  • Section 29C requires disclosure of contributions exceeding ₹20,000 received from persons or companies, subject to the statutory framework.
  • Political parties registered under Section 29A can receive contributions but must comply with reporting and disclosure requirements.
• Sources of Funding: Major sources include individual and corporate donations, electoral trusts, membership contributions, sale of coupons/publications, and other voluntary contributions.
• Tax Exemptions & Deductions in Political Funding under Income Tax Act, 1961
  • Tax Exemption for Political Parties (Section 13A): Registered political parties can claim 100% exemption on specified income, including voluntary contributions, income from house property and capital gains, subject to prescribed accounting, audit and disclosure requirements.
  • Tax Deduction for Corporate Donors (Section 80GGB):  Indian companies can claim a 100% deduction for contributions made to registered political parties or electoral trusts, provided the contribution is made through non-cash modes.
  • Tax Deduction for Individual Donors (Section 80GGC): Individuals and other eligible taxpayers can claim a 100% deduction for contributions to registered political parties or electoral trusts, subject to statutory conditions; cash contributions are not eligible for the deduction.

IAS coaching

About Registered Unrecognised Political Parties (RUPPs)

• A RUPP is a political party registered with the ECI under Section 29A of the RPA, 1951, but which has not fulfilled the conditions necessary for recognition as a National or State party under the Election Symbols (Reservation and Allotment) Order, 1968.
• Registration: Under Section 29A, an association seeking registration as a political party applies to the Election Commission of India within the prescribed period and submits its constitution and other required particulars.
  • Registration does not automatically confer recognised-party status or a reserved electoral symbol.
• Deregistration / Delisting of RUPPs
  • Delisting is Not Equal to Deregistration: The ECI may delist inactive or non-compliant Registered Unrecognised Political Parties (RUPPs) from its list, but delisting does not by itself extinguish the party’s legal registration.
  • Limited Deregistration Power: The ECI does not possess a general statutory power to deregister political parties under the Representation of the People Act, 1951; its powers are primarily derived from Section 29A and the Election Symbols (Reservation and Allotment) Order, 1968.
  • ECI’s Recent Action: The ECI has undertaken exercises to identify and delist RUPPs that have failed to contest elections or comply with prescribed requirements, as part of efforts to clean up the electoral rolls of political parties.
  • Need for Clear Legal Framework: A specific statutory mechanism may be required to enable the identification, verification and removal of persistently inactive or non-compliant parties, while safeguarding due process and the right to association under Article 19(1)(c).
• Funding Status: Being unrecognised does not by itself prevent a registered party from receiving contributions under Section 29B, subject to applicable law.

Concerns Regarding Election Funding

• Opacity and Voter’s Right to Information: Anonymous political funding can restrict voters’ ability to know who financially supports political parties.
  • The Supreme Court in Association for Democratic Reforms v. Union of India (2024) struck down the Electoral Bonds Scheme and related amendments, holding that anonymous political funding implicated voters’ right to information under Article 19(1)(a)
• Financial Asymmetry: Large differences in access to political resources can create an uneven electoral environment, making transparency in donations and expenditure important for informed electoral choice.
• RUPP-Related Financial Risks: The ADR findings reveal that RUPPs lacked publicly available audit or contribution reports, while declared RUPP income is rising rapidly highlighting gaps in monitoring and compliance.
• Weak Enforcement and Fragmented Disclosure: Financial information is often dispersed across ECI/State CEO platforms, while variations in reporting across States can make standardised scrutiny and public comparison difficult.

Way Forward

• Identification and Removal of Inactive Parties: Establish an automatic, periodic verification mechanism to identify parties that do not contest elections or repeatedly fail statutory reporting requirements, while ensuring due process before removal from the relevant register.
• Centralised Financial Disclosure Portal: Develop a single digital platform where every registered party uploads audited accounts, contribution reports, expenditure statements and donor information in standardised, machine-readable formats.
• Independent and Robust Auditing: Strengthen independent annual audits of political-party accounts and enable systematic cross-verification with tax and banking records to detect unexplained or suspicious financial flows.
• Strengthen ECI’s Regulatory Framework: Parliament should clarify the ECI’s statutory powers regarding non-compliant and inactive parties, while establishing proportionate penalties, transparent enforcement procedures and stronger disclosure requirements.

Click to Know UPSC Coaching Centres in India

Conclusion

Transparent political financing, robust auditing and effective regulation of political parties are essential to preserve electoral integrity, voter confidence and democratic accountability.

News Source: The Hindu

Check Out UPSC CSE Books

Visit PW Store