Bogus political donations & fraudulent deduction claims
Table of Contents
Bogus political donations & fraudulent claims u/s 80GGC & 80GGB
This issue highlights a major concern regarding bogus political donations and fraudulent deduction claims under Section 80GGC (for individuals) and Section 80GGB (for companies) of the Income Tax Act. These sections allow 100% tax deduction for donations made to registered political parties. However, since political donations do not require third-party verification, many individuals and companies have misused this provision by falsely claiming deductions without actually donating.
Income Tax Dept’s Warning on Section 80GGC Political Donations
The Income Tax Department has issued a warning to taxpayers, including salaried individuals, regarding claims made under Section 80GGC for donations to political parties. Taxpayers who falsely claimed this deduction are being asked to verify their claims and, if necessary, update their Income Tax Return (ITR) by filing ITR-U before March 31, 2025, for the following years:
- AY 2022-23 (FY 2021-22)
- AY 2023-24 (FY 2022-23)
Findings of Tax Dept. on Bogus political donations & fraudulent deduction claims
- Lakhs of Bogus Claims: Investigations revealed individuals claiming deductions for donations to unrecognized political parties that do not actually receive the funds.
- Refund of Donations: Many cases showed that money was donated on paper and later returned to the so-called donor.
- False Investment and Interest Payment Claims: Apart from political donations, fraudulent claims were also made under other deduction categories.
- Corporate Involvement: Some employees of companies were found to have made fake claims, suggesting an organized effort in certain cases.
- Action Taken: Around 90,000 incorrect deduction claims have been withdrawn till 2024 as per IT department findings.
Why Is This Warning Issued on Bogus political donations & fraudulent deduction claims?
This action follows large-scale fraudulent deduction claims under Section 80GGC, where taxpayers allegedly:
✅ Claimed deductions for donations to unrecognized political parties
✅ Declared donations that were never actually made
✅ Engaged in bogus donation schemes where money was returned after claiming deductions
Since there is no third-party verification mechanism for political donations, many taxpayers took undue advantage of this provision, prompting the IT department to initiate a crackdown.
Implications & Possible Actions: Bogus political donations & fraudulent deduction claims
- The IT department may tighten verification procedures for donations and require cross-verification through banking transactions. Taxpayers making fraudulent claims could face penalties under Section 270A for underreporting or misreporting income. There might be further regulatory changes to improve transparency in political donations, possibly linking them to PAN or Aadhaar for verification.
- This crackdown is part of a broader effort by the government to curb tax evasion and prevent misuse of tax deductions under the guise of political funding. Are you looking for specific legal provisions or recent regulatory updates related to this issue?
What Should You Do?
✅ 1. Verify Your Political Donation Claim
- Check if you genuinely made a donation to a registered political party.
- Ensure you have bank records, receipts, and acknowledgment letters from the political party.
- Verify that the political party is recognized under Section 29A of the Representation of People Act, 1951.
❌ 2. If Your Claim Is Incorrect, File ITR-U
- If you falsely claimed a deduction, you can voluntarily file an Updated Return (ITR-U) by March 31, 2025.
- Filing ITR-U helps avoid harsher penalties and scrutiny by the Income Tax Department.
- However, you will be required to pay an additional tax of 25% to 50% based on when you update the return.
⚠ 3. Future Precautions
- Avoid bogus deduction claims, as the tax department is enhancing digital scrutiny.
- Donations should be made through banking channels for proper verification.
- Keep proper documentation to defend genuine claims in case of future inquiries.
Consequences of Failing to Comply
If the Income Tax Department detects fraudulent claims without a voluntary correction:
🚨 Penalty under Section 270A for under-reporting/misreporting income
🚨 Interest under Section 234F for late ITR updates
🚨 Scrutiny or reassessment proceedings under Sections 143(2) and 147
This move is part of a broader effort to ensure transparency in political donations and curb tax evasion through false deductions. If you need guidance on filing ITR-U or verifying your donation claim, let me know
Crackdown on fake political donations
Tax Deductions for Political Donations Individual Taxpayers Outpace Corporates
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