The Telegraph
Since 1st March, 1999
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Taxman takes broom to parties
- Nine in Mumbai told to deduct tax before paying contractors

Mumbai, April 1: To make political spending more transparent, major parties in Maharashtra have been told to deduct tax at source before paying contractors.

The directive from the income-tax department in Mumbai, sent to at least nine parties, applies to all payments for services relating to political programmes, such as setting up platforms and hoardings, printing pamphlets or renting out cars.

The political parties welcomed the decision, adding it’s not they but those who provide the services who will feel the pinch. State Congress spokesman Sanjay Nirupam said the tax will be passed on to the contractors.

Political parties are exempt from paying tax on their incomes, largely made up of donations, under sections 10 and 11 of the Income Tax Act.

Income-tax officials said letters were sent on Wednesday and Thursday asking the parties to acquire a tax deduction account number. The letters were accompanied with the 49B forms so that the parties could apply for the account number.

The parties that received the notice include the Congress, Nationalist Congress Party, Shiv Sena, BJP, Republican Party of India, Samajwadi Party and even Raj Thackeray’s newly-formed Maharashtra Navnirman Sena.

The letters did not specify the range of political activities coming under the tax-deducted-at-source (TDS) bracket, but sources said any transaction above Rs 2,500 would qualify. The parties would have to file quarterly TDS statements and annual TDS returns.

The IT letter said: “As per Chapter 17B of the Income Tax Act, 1961, income-tax is required to be deducted by any payer, including the political party, on various transactions of specified nature entered into with any resident/person.”

“We welcome the decision. Everybody’s expenditure should be audited, and no person or outfit should be above the law,” the Congress spokesman said. “It (the new rule) will affect the contractors and those who render their services for our activities. We have no problem with the notice.”

Nationalist Congress Party spokesman Gurunath Kulkarni praised the move saying it would help make political parties’ transactions more transparent.

“We file our balance sheets before the Election Commission anyway,” he said. “The TDS deductions would be an addition to it. We have forwarded the forms and the letter to our auditors and we will comply with it.”

BJP treasurer Pratapbhai Ashar said his party had not received the notice yet but would follow the directive.

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