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Finance Bill 2017 makes it easy to launder money through a political party: Here's how

The Finance Bill, 2017 introduced a variety of changes: One key amendment was how political parties were financed. This author discussed earlier how the changes to the Companies Act, 2013 would have devastating effects on shareholder transparency but there is something deeper hidden in the legislative framework:

Union Finance Minister Arun Jaitley. PTI

Union Finance Minister Arun Jaitley. PTI

The Finance Bill, 2017 brings about an amendment to Section 182 of the Companies Act, 2013 and lifts two earlier requirements:

a) The cap on donations to political parties and

b) The requirement to list the name of the political party on the company's books.

Basically, it allows companies to donate unlimited amounts of money to political parties and not tell anyone about it.

Section 182 also contains these two provisions:

1) No political donation can be made unless the board of directors passes a resolution authorise such a payment

2) Any body of individuals may form a registered political party under Section 29A of the Representation of the People Act, 1951 by making an application to the Election Commission for registration and the income of political parties is exempt form taxation via Section 13A of the Income Tax Act of 1961.

So, today, directors of a company could form a political party and siphon off company money without having to disclose the donation in the company books. Further, the money would be parked for them, tax-free, as long as the political party is registered under Section 29A of the Representation of the People Act, 1951.

Neither the company nor the party will pay tax on those profits that are "donated" to the said party. The directors could then spend the money on themselves via the party and call it "party expenditure" or could pay themselves money out of the party funds as and when they need it.

In essence, this makes political parties a preferred vehicle for money laundering. This loophole in the Finance Bill, 2017 allows for rampant corruption, albeit of the cashless kind.

Updated Date: Apr 03, 2017 13:49 PM

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