Curbing Misuse of Political Funding Through RUPPs

Curbing Misuse of Political Funding Through RUPPs

#GS-2 #Indian Polity & Constitution #Constitution #Elections #Governance & Social Justice #Transparency & Accountability #Regulatory Bodies #Current Events #National

Key takeaways

  • Out of more than 2,800 registered unrecognised political parties (RUPPs) in 2026, only 750 contested the 2024 general elections.
  • In 2025, the Election Commission of India (ECI) found 334 RUPPs non-compliant with statutory registration requirements.
  • Candidate spending caps under Rule 90 stand at Rs 75-95 lakh for Lok Sabha and Rs 28-40 lakh for state assemblies, while party spending remains unlimited.
  • Political parties must report all individual donations exceeding Rs 20,000 to the ECI under Section 29C of the Representation of the People Act, 1951.

Why in News

  • The discussion around political funding has grown intense after reports of widespread tax evasion and money laundering involving Registered Unrecognised Political Parties (RUPPs).

Summary

  • Political funding in India faces major challenges such as opaque donations, misuse of RUPPs, corporate influence, tax loopholes, and no spending limits for parties.
  • Reforms must empower the Election Commission of India (ECI), strengthen audits, regulate corporate donations, cap party spending, plug tax loopholes, and introduce partial state funding.

Legal Framework Governing Political Funding in India

  • Political funding means the methods and sources political parties use to raise money for election campaigns and daily operations.
  • Article 324 gives the Election Commission of India (ECI) full power to direct and control elections to keep democracy free and fair.
  • Article 19(1)(a) protects the fundamental Right to Know for voters, which the Supreme Court says includes knowing who funds political parties.
  • In *Association for Democratic Reforms v. Union of India (2024)*, the Supreme Court struck down the Electoral Bond Scheme because anonymous political donations violate voter rights under Article 19(1)(a) and encourage corruption.

Statutory Provisions

  • Section 29A of the Representation of the People Act, 1951 handles the formal registration of political parties with the ECI for tax exemptions and donations.
  • Section 29B of the Representation of the People Act, 1951 gives registered parties the legal right to accept voluntary donations from individuals and private companies.
  • Section 29C of the Representation of the People Act, 1951 requires every registered party to submit an annual Contribution Report to the ECI listing all donations above Rs 20,000.
  • Section 182 of the Companies Act, 2013 allows corporate donations to political parties under mandatory financial disclosure rules.
  • The 2024 Supreme Court ruling restored the ban on unlimited corporate donations, bringing back the focus on corporate donation transparency.
  • The Foreign Contribution (Regulation) Act, 2010 (FCRA) bars political parties and candidates from accepting foreign donations to protect national sovereignty.
  • Amendments in the Finance Acts of 2016 and 2018 allowed Indian companies with over 50% foreign ownership to donate under FEMA and FDI limits.
  • Section 13A of the Income Tax Act, 1961 grants 100% tax exemption on party incomes if parties keep proper records and audit accounts.
  • A party loses its tax exemption under Section 13A if it fails to submit its annual donation report required by Section 29C.
  • Sections 80GGB and 80GGC of the Income Tax Act, 1961 allow companies and individual taxpayers to claim a 100% tax deduction on political donations.

Registered Unrecognised Political Parties (RUPPs)

  • Any group of citizens can form a political party and apply for registration under Section 29A of the Representation of the People Act, 1951.
  • Registered parties that lack state or national status still enjoy 100% tax exemption on donations under the Income Tax Act, 1961.
  • Registered unrecognised parties receive common election symbols for their candidates in parliamentary and assembly elections.
  • Registered unrecognised parties can deploy up to 20 star campaigners during election campaigns.
  • Under Section 29C, RUPPs must record details of donors giving more than Rs 20,000 and submit yearly reports to the ECI.
  • Political donations over Rs 2,000 must go through cheques or bank transfers to retain tax exemptions.

Challenges

  • Out of more than 2,800 registered RUPPs in July 2026, only about 750 parties fought in the 2024 general elections.
  • A July 2025 report by the Association for Democratic Reforms (ADR) showed that only 26% of RUPPs published financial reports for 2022-23.
  • In 2025, the ECI found 334 RUPPs non-compliant, raising fears that these groups act as shell entities for money laundering under Section 80GGC.
  • Under Section 29A, the ECI can register political parties but lacks the power to deregister them for non-contestation or money laundering, as held in *Indian National Congress v. Institute of Social Welfare (2002)*.
  • The ECI can only delist dormant parties, which does not automatically strip them of tax exemptions under the Income Tax Act, 1961.
  • The ECI can deregister a party only in rare cases, such as fraud during registration or loss of constitutional allegiance.
  • Rule 90 of the Conduct of Elections Rules, 1961 caps candidate spending at Rs 75-95 lakh for Lok Sabha and Rs 28-40 lakh for state assemblies, but sets no limit on party spending.
  • Low spending limits for candidates encourage hidden campaign spending and push unaccounted black money into elections.
  • Corporate money still reaches political parties through Electoral Trusts, creating risks of political favours and policy capture.
  • The ECI lacks internal accounting teams and relies on the Central Board of Direct Taxes (CBDT) to check tax compliance under Section 13A.

Way Forward

  • Amend Section 29A as recommended by the Law Commission 255th Report (2015) and the ECI in 2016 to let the ECI deregister inactive parties.
  • Enact statutory spending limits on political parties as suggested by the Law Commission 255th Report (2015) to balance election spending.
  • Require audit checks by CAG empanelled auditors and apply penalties for non-compliance as proposed by the 2nd ARC (2007).
  • Task tax authorities and enforcement agencies with digital monitoring to trace suspicious money transfers by RUPPs.
  • Grant tax benefits only to RUPPs that secure a minimum vote share of 1% in elections to curb shell parties.
  • Tighten rules on corporate funding as recommended by the Dinesh Goswami Committee (1990).
  • Introduce partial public election funding like free broadcast time as recommended by the Indrajit Gupta Committee (1998).
  • Cap tax deduction claims under Sections 80GGB and 80GGC to stop tax evasion and money laundering.

Conclusion

  • A transparent political funding system is essential to protect the basic structure of the Constitution and maintain fair elections.
  • Giving power to the ECI and setting party spending limits will protect Indian democracy from black money.

Frequently Asked Questions

  • Section 29C of the Representation of the People Act, 1951 mandates political parties to report donations above Rs 20,000 to the ECI.
  • Section 13A of the Income Tax Act, 1961 provides tax exemptions to political parties that audit their accounts and file donation reports.
  • Inactive RUPPs create serious risks because bad actors can use them as shell entities for money laundering and tax evasion.
  • Candidate spending faces legal caps while political party spending has no limit, allowing parties to fund campaigns without restriction.
  • Reform proposals focus on giving deregistration powers to the ECI, capping party spending, auditing accounts, and regulating corporate funding.