Tax Exemptions to Political Parties does look like a corrupt decision, but it is not

Political Parties

Latest diktat from the Government on old currency notes is in the form of a concession to political entities. Government has declared that political parties will not be investigated for depositing old currency of higher denominations into the bank accounts of political parties. Government issued a clarification that exemption is only for the accounts of political parties and not for individuals associated with parties.

Considering the political bickering that started ever since demonetisation, this is a pleasant surprise for all political parties, especially the ones in Uttar Pradesh. From Mulayam to Maya everyone criticised Narendra Modi that the decision of scrapping 500 & 1000 notes was done only keeping forthcoming elections in the state in mind. All political parties claimed that BJP leaders have prior information on demonetisation and already converted their black money into lower denominations. Seems Modi is allowing his political ‘Mitron’ a level playing field to compete with him.

Prima facie, this decision is to allow political parties appears a “Corrupt” decision.

This decision may dent into the credibility Modi has attained by preaching about ‘how the corrupt would cry’. In one decision, he allowed all political parties to convert their black money into white. Why risked such a negative publicity? As Modi himself claimed in the parliament, though he may not be master of finance, administration, he has better political acumen. This decision of exempting political parties from scrutiny for depositing black money (Yeah! We better stop pretending it to be white!) and allowing them to convert it into white – is in stark contrast to the moves so far made by the government.

Despite the pains, there were reports of how people supporting the demonetisation move made by Modi. Politically, he already started reaping some of benefits in terms of increased popularity and image. Why then Modi threw the so called ‘good will’ down the drain, by exempting deposits into accounts of political parties from scrutiny by IT department?

It took a while to understand the game plan!

Consider a political party has 100 Cr of black money in 500 & 1000 denominations. Though political parties are exempted from Income Tax, they keep money in cash so it can be used for unaccounted expenditure during elections – like liquor and direct money distribution to voters. How the party can turn it into white? They simply cannot walk into the bank and give 100Cr in either 500/1000, for it is not accounted as the party’s money. Individuals of party have to convert it into white, by depositing it into ‘benami’ accounts. Considering even workers of political parties are victims of demonetisation, no worker would be ready to become ‘benami’ for the party. He has to convert his own money first, party comes later!


So, how the parties converted their black money that was in cash form? Simple. Call the CGM of a bank and assign him some portion of the amount. [It came to my notice, how this was done in Hyderabad. In fact, CGM of few banks have vented out their frustration to one corporate friend. They receive a call from a strong politician who says he would be sending four or five crores of old notes. When the CGM rejects the request citing procedural problems and impossibility of the task, he would be reminded in which college his son or daughter is studying. Now, it is the job of CGM to convert this into new currency. Does he have any option rather than accepting the demand (certainly it cannot be a request!)? In any bank, it is not possible to conceal such large transactions. So, CGM allows documentation through many pan cards, wherever possible. If the bank is simply substituting new currency with old ones, they would inform their higher-ups and the information is passed onto IT. That was the reason, how the government could trace much of new currency and confiscated it. Of course, no evidence on paper and nothing on record. And this paragraph remains only rumour – or a figment of my imagination. Even I can’t prove this!]


In the last forty days, political parties were busy in converting their cash. Frankly, there were rumours old currency to the tune of fifteen thousand crores was housed in West Bengal secretariat. That was brought through many trucks and so Army’s posting in the city caused a storm in Trinamool’s tea cup. Again, it is only a rumour.


One may well remember that even Arvind Kejriwal’s wild estimate of money deposits was only Eleven Lac Crores. But, already the banks received more than Twelve and half Lac Crores! This was way beyond the government’s expectation. Narendra Modi expected that most of the black money would rot in the lockers of hoarders. But, scamsters are too intelligent. That was the reason RBI declared a monthly transaction limit in the Jan Dhan accounts, that were flooded with money after eighth November. So, they locked this money at least for the time being. Though Modi asked the poor benamis to retain the money in their accounts, knowing how rural India works, they would be long dead before they even consider such an option.

So, the only achievement of demonetisation remained that large amount of money came into circulation. Though, the government gets credit for this feat, it is short of what the government expected. All the while, opposition parties were attacking Modi on how he looted the poor. Rahul Gandhi displayed his foolish ignorance (it is not even normal ignorance) by saying the rich would take loans from the deposits of poor and will not repay. Arvind Kejriwal said, Modi was looting the money of poor. Modi looted money from the poor and deposits in their own accounts? More qualifications, more foolishness!

The first goal of current declaration is it diverts the attention of opposition leaders from making wild accusations. They would be busy in converting the remaining cash hoards. But, now all politicians look fools for their scrambling to convert their cash in the last forty days. They would be cursing Modi for making them work over time. Most of their cash reserves were already converted. Now, their scramble would start again. They need to find new benamis and do documentation so that remaining money is accounted. The process is cumbersome because they need to have individual donations of less than 20,000 rupees. Details of donors shall be recorded by political parties, with PAN numbers!

So, all will be busy in the next two weeks, except Rahul and Arvind. And on first January, government will declare how much money was converted by the political parties. This would expose how much black money these parties have with them. Then, Modi will say, “Mitron! See, how depraved these parties were. They were crying for poor but stashed lots of black money”. There would be more credibility for his words. If a political party thinks too much and decides against converting the cash, it risks losing its money! Modi put the opposition in a tight spot, so that he can get some relief to decide his next course of action.

And finally, government can go back on its word at any time. In January, if Modi decides he will scrutinise donations of political parties, who can prevent him? Of course, he is short of staff to investigate even a fraction of cases that were registered. Congress may be thanking their complacency, due to which they have not recruited sanctioned strength of staff in Income Tax Department.

Then there will be elections in Uttar Pradesh. All political parties have their money in their accounts. Now, if they withdraw the money and spend it in elections, they would be questioned why they need to spend this much? Earlier, they used to maintain one account for the Election Commission and spend more in the form of cash. In the changed scenario, they cannot withdraw more, as EC may consider entire amount as election expenditure and may void some candidates.

This is perhaps the worst case scenario of having the money but not able to spend it! Seems, Modi would laugh again on the way to ballot box.