Context

Allegations of large-scale tax evasion and money laundering involving Registered Unrecognised Political Parties (RUPPs) have intensified the debate on political funding transparency in India.

Legal Framework Governing Political Funding

Constitutional Provisions

  • Article 324: Vests superintendence, direction, and control of elections in the Election Commission of India (ECI).
  • Article 19(1)(a): The Supreme Court has affirmed voters' fundamental "Right to Know" the sources of political funding.
  • Association for Democratic Reforms v. Union of India (2024): SC struck down the Electoral Bond Scheme, holding that anonymous political funding violates voters' Right to Information under Article 19(1)(a), and warned that unlimited corporate funding could promote institutionalised corruption.

Statutory Provisions

  • RPA, 1951:
  • Section 29A: Registration of associations as political parties with the ECI.
  • Section 29B: Parties may accept voluntary contributions from individuals and non-government corporations.
  • Section 29C: Annual Contribution Report to ECI declaring donations above ₹20,000.
  • Companies Act, 2013 (Section 182): Companies can donate to political parties subject to disclosure requirements.
  • FCRA, 2010: Prohibits foreign funding to parties/candidates; however, Finance Acts of 2016 and 2018 exempted Indian companies with over 50% foreign ownership from the definition of "foreign source".

Taxation Provisions

  • Section 13A, Income Tax Act, 1961: 100% tax exemption on donations for registered parties, conditional on maintaining accounts, recording donations above ₹20,000, and audit; exemption denied if Section 29C report is not filed.
  • Sections 80GGB and 80GGC: 100% deduction for companies (80GGB) and individuals (80GGC) donating to registered parties or electoral trusts.

Registered Unrecognised Political Parties (RUPPs)

  • Any association can register under Section 29A, RPA 1951 without needing state/national recognition.
  • Benefits enjoyed by RUPPs:
  • 100% tax exemption on donations (subject to compliance).
  • Allotment of common symbols for candidates.
  • Permission to deploy up to 20 'star campaigners'.
  • Compliance mandates: Maintain records of donors contributing over ₹20,000; donations above ₹2,000 only via cheque/bank transfer; submit annual reports to ECI.

Major Concerns

  • Proliferation of Bogus Parties: Of 2,800+ RUPPs (as of July 2026), only ~750 contested the 2024 general elections; most exist only on paper ('letter pad parties').
  • Poor Disclosure: Per ADR (July 2025), annual reports for 2022-23 were publicly available for only 26% of RUPPs; in 2025, the ECI found 334 RUPPs non-compliant.
  • Shell Entities: Some RUPPs may launder unaccounted money, exploiting tax deductions under Section 80GGC.
  • ECI's Regulatory Limits: Under Indian National Congress v. Institute of Social Welfare (2002), the ECI can register but cannot deregister parties for dormancy or financial crimes; it can only "delist" them, which does not strip tax benefits. Deregistration is possible only for fraud, disloyalty to the Constitution, or unlawful declaration.
  • Asymmetry in Expenditure Limits: Rule 90, Conduct of Elections Rules 1961 caps candidate spending (₹75–95 lakh for Lok Sabha; ₹28–40 lakh for Assemblies), but there is no statutory limit on party expenditure.
  • Outdated Spending Limits: Inflation and digital campaigning encourage under-reporting and black money.
  • Corporate-Political Nexus: Donations via Electoral Trusts and direct donations may obscure quid pro quo arrangements and crony capitalism.
  • Auditing Deficits: ECI lacks in-house forensic accounting and depends on the CBDT for Section 13A verification.

Reforms Needed

  • Empower the ECI: Amend Section 29A to grant deregistration powers (Law Commission 255th Report, 2015; ECI 2016 memorandum).
  • Cap Party Expenditure: Statutory limits on party spending (Law Commission 255th Report).
  • Strengthen Audits: CAG-empanelled audits with penalties (2nd ARC, 2007).
  • Inter-Agency Monitoring: Income Tax Department to monitor RUPP transactions and act against money laundering.
  • Vote Share Threshold: Require a minimum vote share (e.g., 1%) for tax benefits.
  • Regulate Corporate Funding: Per Dinesh Goswami Committee (1990).
  • Partial State Funding: In-kind support like free airtime (Indrajit Gupta Committee, 1998).
  • Plug Tax Loopholes: Rationalise Sections 80GGB/80GGC deductions.

Conclusion

A transparent political funding architecture is essential to uphold the basic structure of the Constitution and genuine democratic representation. Empowering the ECI, transparency mandates, and expenditure caps are vital to insulate elections from black money.