Political funding in India is a major concern under need for electoral reforms in India. The financing of the world's most extensive electoral process remains a perplexing issue, as the involvement of businesses in supporting both disclosed and undisclosed expenditures during elections has been a matter of public knowledge for a considerable period.
On 21 December 2020, the Central Information Commission issued a verdict that political parties cannot be classified as "public authorities" and hence the disclosure of information regarding the funding of political parties is not mandatory for voters and citizens.
Political Parties As per a notification dated 23 September 2021 released by the Election Commission, there exist eight National Parties and over 60 State Parties. It also recognizes and mentions an approximate count of 3,000 Registered Unrecognised Political Parties (RUPP). RUPPs encompass newly established parties, those unable to attain a sufficient vote share in State Assembly or Lok Sabha elections to attain state party status, or those that have abstained from participating in elections since their registration.
As politics keeps expanding, tracking party funds and following election rules has become less transparent.
Income Known Sources (includes, but not limited to) Bank Interest Membership Fees Party Levy Sale of Assets Sale of Publications Voluntary donations exceeding ₹20,000
Unknown Sources (includes, but not limited to) Contribution from meetings/morchas Electoral Bonds Miscellaneous Income Relief Fund Sale of Coupons Voluntary contributions less than ₹20,000
As of 2023, Electoral Bonds emerged as the primary means of income for political parties. The recent unanimous Supreme Court five-judge bench verdict comprising Chief Justice of India, DY Chandrachud, Justices Sanjiv Khanna, BR Gavai, JB Pardiwala, and Manoj Misra on the Electoral Bond has received much attention. It has been hailed as a significant step in bringing the much needed cleaning in the funding of the parties and would set new paradigms for the funding of the political parties. Unknown Donors — individual or corporate — who contribute less than ₹20,000 to any political party in a single tranche are not obligated to disclose their details and their contributions are classified as unknown income. Additionally, after the implementation of Electoral Bonds Scheme in 2018, contributions received through these bonds are also categorized as unknown sources of income.
+ Top 4 National Parties Income (₹) in FY 2021-22
Party Total Income Unknown Sources % Unknown Sources
Bharatiya Janata Party 1,917 crore 1,161 crore 61%
Trinamool Congress 546 crore 528 crore 97%
Indian National Congress 541 crore 389 crore crore 72%
Communist Party of India (Marxist) 162 crore 79 crore 48%
The aggregate revenue of eight national parties during the fiscal year 2021-22 amounted to ₹3,289 crore. Out of this sum, ₹781 crore was contributed by identified donors, while ₹336 crore originated from various known sources such as the sale of assets, membership fees, bank interest, sale of publications, and party levy, among others. Notably, the remaining ₹2,172 crore, constituting 66% of the total income, was derived from unknown sources.
+ Top 10 Regional Parties Income (₹) in FY 2021-22
Party Total Income Unknown Sources % Unknown Sources
Dravida Munnetra Kazhagam 318.745 crore 306.025 crore 96%
Biju Janata Dal 307.288 crore 291.096 crore 95%
Bharat Rashtra Samithi 218.112 crore 153.037 crore 70%
YSR Congress Party 93.724 crore 60.0168 crore 64%
Janata Dal (United) 86.555 crore 48.3617 crore 56%
Samajwadi Party 61.011 crore 3.66 crore 6%
Shiromani Akali Dal 25.414 crore 12.1987 crore 48%
All India Anna Dravida Munnetra Kazhagam 25.263 crore nil 0%
Maharashtra Navnirman Sena 6.7683 crore 5.0762 crore 75%
Telugu Desam Party 6.028 crore 3.667 crore 61%
Taxation Contributions or donations solely in the form of a bank cheque or digital payments to a registered (under Section 29B of the Representation of the People Act, 1951) political party, including electoral trust, in India during the financial year are eligible for deduction in taxable income under Section 80GGC of the I-T Act, 1969. Donations in the form of cash amounting more than ₹2,000 are deemed ineligible for deduction under this provision.
Expenses According to the Centre for Media Studies estimations, 2019 Indian general election was expected to see an expense of ₹55,000 crore ($8.6 billion)
Expenditure Division of the Election Commission of India publishes the declared expenditure filed by the political parties in public domain.
Disclosures Section 29C of the Representation of the People Act, 1951 stipulates specific requirements for public disclosures on the donations received and expenditure made by political parties.
According to a report by ADR, regional political parties garnered an approximate sum of Rs 108 crore during the fiscal year 2015-16 through donations exceeding Rs 20,000. It is noteworthy that this threshold mandates the disclosure of funding sources. Among 16 regional political parties that have publicly acknowledged receiving donations exceeding Rs 20,000, it has come to light that 9 parties, namely Shiv Sena, Aam Aadmi Party, Pattali Makkal Katchi, YSR Congress Party, All India United Democratic Front, Indian Union Muslim League, Maharashtra Navnirman Sena, Shiromani Akali Dal, and Desiya Murpokku Dravida Kazhagam, have neglected to disclose the Permanent Account Number (PAN) details of 1,567 donations. These parties have collectively amassed a substantial sum of Rs 6.79 crore through such undisclosed contributions or "unknown sources".
During the financial years of 2014-15 and 2015–16, a collective of 26 regional political parties have failed to submit their donations report to the Election Commission of India (ECI). Among these parties, 21 have neglected to file their reports for both financial years, while the remaining five (AIUDF, DMDK, JD(S), PMK and Shiv Sena) have submitted their report for 2014-15 but have failed to do so for 2015–16.
A comprehensive study conducted by the Association for Democratic Reforms reveals that 69% of financial resources and contributions acquired by political parties during the period spanning from 2004–05 to 2014-15 originated from undisclosed origins. Income from "unknown sources" is the major chunk of revenue generated by political parties as per their mandatory disclosures.
Challenges Tax Evasion All political parties including RUPPs are "entitled" to acquire contributions from both the general public and various organizations, while simultaneously benefiting from tax exemption as stipulated by the Income Tax Act. Any donations received by the political party are entirely exempt from income tax, thereby affording the donor the opportunity to claim income tax exemption for the donated amount.
As of 2023, tax evasion is a major concern among approximately 3,000 RUPPs in India. There were around 2,300 such parties in March 2019. Since the year 2001, there has been an increase of 300 percent in the number of RUPPs. Election Commission and the income tax authorities often report and take action against those found with "financial irregularities". During its verification drive, the Election Commission discovered that the existence of these parties, in and of itself, does not pose a significant problem. However, the extensive financial fraud in which these organizations are implicated gives rise to apprehensions regarding various financial transgressions, encompassing tax evasion and illicit money transfers. The magnitude of the sums involved in these illicit activities could potentially reach billions of rupees.
EC investigations have revealed that numerous such political parties are engaged in either evading substantial amounts of income tax or participating in money-laundering activities. For instance, Jan Raajya Party of Uttar Pradesh is currently under investigation for suspected efforts to legitimize illicit funds following the demonetization in November 2016. Additionally, there are indications that certain organizations have served as intermediaries for gathering donations intended for purposes unrelated to electoral activities.
The Election Commission furnished the I-T department with details of 2,174 Registered Unrecognized Political Parties that have failed to furnish their mandatory annual financial reports. In September 2022, the Income Tax Department conducted raids on 23 RUPPs across 110 locations.
In September 2022, a kite selling shop — the premises of Sardar Vallabhbhai Patel Party at Dattapada Road in Borivali, Mumbai was subject to a raid conducted by officials of Income Tax Department. The president of the party, Dashrath Bhai Parekh claimed that all financial contributions were legal and the crores of rupees in party's income came from the donors of his political party comprise philanthropic entities, commercial enterprises, textile manufacturers, diamond traders, and real estate professionals.
Jantawadi Congress Party located at Swadeshi Mills Road in Chunabhatti, Mumbai was also found in financial wrongdoings. The party witnessed a remarkable surge in its donation revenue from ₹2,000 in FY 2018–19 to ₹5.83 crore in the next FY 2019–20. Party president Santosh M. Katke resides at the Mhada Colony Slums in Wadala, Mumbai. He was allegedly involved in money laundering activities.
It is noteworthy that the auditor of both political parties — Sardar Vallabhbhai Patel Party and Jantawadi Congress Party — was Kashyap Kumar Ishwarbhai Patel. Furthermore, Patel's appointment as auditor for both parties occurred on the same date of 5 January 2021, and the letters of appointment issued by both parties share the same reference number. The Election Commission has raised concerns regarding the possibility that the two parties are under the control of the same group of individuals.
Abdul Mabood, the party president of Apna Desh Party in Sultanpur (Uttar Pradesh) was investigated by tax authorities for receiving donations of nearly ₹100 crores and found that his associate Abdul B. Razak Pathan "misused" Mabood's PAN card without his knowledge . Razak established a bank account in Gujarat with the intention of facilitating this fraud.
Jan Raajya Party in Kanpur was investigated and feud between its co-founders Ravi Shankar Yadav and Omendra Bharat was revealed. It was found that Bharat is known to have later joined the Aam Aadmi Party. In November 2016, Arunesh Kumar Singh, the incumbent party president at the time, lodged a First Information Report (FIR) against Yadav, accusing him of engaging in financial misdeeds. The FIR was registered at the Naubasta police station in Kanpur.
Bharatiya Rajnitik Vikalp Party was registered in Bihar's Bakhtiyarpur but all its financial transactions were carried out in Delhi NCR. This political party actively promotes the financial advantages of contributing and donating to its funds by highlighting the income tax exemption benefits associated with such donations. In 2019–20, the political party successfully amassed a substantial sum of ₹25.44 crore.