The Supreme Court is scheduled to hear on Monday a petition challenging the provision of the Income Tax Act that allows political parties to receive cash donations below Rs 2,000 without disclosing the identity of donors, raising a fresh constitutional question over transparency in political funding.
A bench of Justices Vikram Nath and Sandeep Mehta is likely to take up the petition filed by Khem Singh Bhati. The Supreme Court had earlier sought responses from the Centre, the Election Commission of India and other respondents in the matter.
The petitioner has challenged Clause (d) of Section 13A of the Income Tax Act, 1961, arguing that permitting anonymous contributions below the prescribed threshold makes it possible for political funding to escape meaningful public scrutiny. The plea has sought its striking down as unconstitutional and has relied upon the Supreme Court's landmark 2024 judgment invalidating the electoral bonds scheme.
Petition invokes voters’ right to know
At the heart of the challenge is the argument that voters are entitled to know who finances political parties seeking their support at elections. According to the petition, non-disclosure of donors deprives citizens of information that could reveal possible financial influence over political parties and their policies.
The absence of such information, it argues, prevents voters from making a rational and fully informed choice at the ballot box and consequently affects the purity and transparency of the electoral process.
The petitioner has sought a direction requiring political parties to disclose the name and other particulars of every person making a monetary contribution, irrespective of its value. He has also asked the Election Commission to make non-acceptance of cash donations a condition for registration of political parties and allotment of election symbols.
Section 13A provides political parties with exemption from income tax on specified categories of income, including voluntary contributions, subject to prescribed conditions. Under the existing framework, parties are required to maintain records identifying contributors where a contribution exceeds Rs 2,000.
The petition effectively questions whether permitting anonymity below that threshold remains constitutionally sustainable following the Supreme Court's reasoning in the electoral bonds case.
Electoral bonds ruling forms key backdrop
In February 2024, a five-judge Constitution Bench unanimously struck down the electoral bonds scheme, holding that anonymous political funding through the mechanism violated voters' right to information under Article 19(1)(a) of the Constitution.
The court had found that information about political funding was important because financial contributions could create opportunities for donors to influence policymaking. It also invalidated related legislative amendments that had enabled the anonymous funding mechanism.
The present petition seeks to extend the transparency principle underlying that judgment to cash contributions received by political parties.
There is, however, an important difference between the two mechanisms. Electoral bonds allowed donations of potentially very large amounts without public disclosure of the donor, whereas the provision now under challenge concerns individual cash contributions below Rs 2,000. The constitutional issue before the court will therefore include whether the disclosure requirement should apply regardless of the size and mode of a political contribution.
Seeks scrutiny of parties’ financial records
The petition goes beyond challenging the Rs 2,000 threshold and seeks wider reforms in the financial accountability of political parties.
It has asked the Election Commission to scrutinise Form 24A contribution reports filed by recognised political parties and take action where required donor information, including addresses or Permanent Account Numbers, has not been provided.
The petitioner has sought directions requiring parties to deposit contributions for which necessary donor particulars are missing. He has also urged the court to direct the Election Commission to issue notices to defaulting parties under the Election Symbols (Reservation and Allotment) Order, 1968, asking why their reserved symbols should not be suspended or withdrawn if complete contribution reports are not filed within the stipulated period.
Another prayer seeks a standardised accounting system for political parties, with their accounts audited by independent auditors appointed through the Election Commission.
CBDT scrutiny for five years sought
The petition has additionally sought directions to the Central Board of Direct Taxes to examine income-tax returns and audit reports submitted by political parties over the past five years.
It wants the CBDT to initiate appropriate proceedings involving taxation, penalties or prosecution wherever parties are found to have violated the requirements of Section 13A of the Income Tax Act read with Section 29C of the Representation of the People Act, 1951.
Section 29C requires political parties to report contributions exceeding the statutory disclosure threshold and provide prescribed information about donors.
Monday's proceedings will therefore have implications beyond the narrow question of cash contributions below Rs 2,000. The case places before the Supreme Court the broader issue of how far the constitutional requirement of transparency in political finance, strengthened by its 2024 electoral bonds judgment, should extend to the everyday funding and accounting practices of political parties.