Supreme Court Issues Notice On Plea Challenging Income Tax Exemption For Political Parties For Cash Donations Upto Rs 2000

The Supreme Court today issued notice on a writ petition seeking better transparency in political party-funding, while alleging 'huge discrepancy' between the income tax returns and contribution reports filed by political parties.

The petition challenges the Income Tax Act provision which allows political parties to receive cash donations upto Rs.2000. The petitioner claims that with the phenomenal increase in digital payments across India, there is no justification for allowing cash donations upto Rs.2000.

A bench of Justice Vikram Nath and Justice Sandeep Mehta called for the response of the respondents, including the Election Commission, after hearing Senior Advocate Vijay Hansaria. Emphasizing on transparency in political party funding as a fundamental right recognized in the Electoral Bonds case, Hansaria submitted that tax exemption is available to political parties under the subject provision on the basis that they declare details of contributors with PAN details and bank details.

Briefly put, the petition, filed by Dr. Khem Singh Bhati, challenges the constitutionality of Section 13A(d) of the Income Tax Act, 1961, which excludes from the definition of "income" contributions in excess of Rs 2000 received by political parties through electoral bonds and banking channels. This provision allowed parties to receive cash donations up to Rs 2000 which were exempted from tax disclosures.

Arguing that the digital payments ecosystem has transformed the financial landscape, the petitioner submits that there is “no rational justification” for continuing to permit cash contributions. He relies on government data showing massive UPI penetration, over ₹24.03 lakh crore in UPI transactions in June 2025 alone to assert that cash donations serve no legitimate purpose except to facilitate anonymity.

The petition alleges that there are instances of some parties reporting “nil contributions” by declaring their entire inflow as cash membership fee.

In this backdrop, the plea seeks directions to the Election Commission of India to scrutinize Form 24A contribution reports of all recognized political parties and compel disclosure of PAN and bank details for all contributions.

The specific reliefs sought are as follows:

- Strike down clause (d) of section 13A of the Income Tax Act, 1961 as unconstitutional;

- Direct the Election Commission of India to :

a. scrutinize Form 24A contribution reports of all recognised political parties (National and State), and require them to deposit the amount received by way of contributions for which address and/or PAN number have not been furnished;

b. issue notices to the defaulting political parties under paragraph 16A of the Election Symbol Order, 1968 as to why the reserved symbol shall not be suspended/ withdrawn for failure to submit Form 24A contribution reports with full particulars within prescribed period.

c. require that the accounts of all political parties shall be maintained in such form as may be prescribed and audited by independent auditors appointed by it.

- Direct the Election Commission of India to prescribe as a condition of registration of political party and allotment of election symbol that no amount can be received in cash by any political party;

- Direct the Central Board of Direct Taxes to scrutinize the income tax returns and the audit reports filed by the political parties under section 65 142 and 143 of the Income Tax Act, 1961 for the last five years and initiate appropriate proceedings for levy of tax, penalty and prosecution for failure to comply with the requirements of section 13A of the Income Tax Act, 1961 read with section 29C of the Representation of People Act, 1951.

Case Title: KHEM SINGH BHATI v. ELECTION COMMISSION OF INDIA, W.P.(C) No. 1076/2025