One of the enduring ironies of the Indian political system is that political parties, which are considered the principal stakeholders of electoral democracy, do not find a mention in the Constitution, except in the Tenth Schedule. They exist as “associations” in furtherance of the fundamental rights under Article 19. No effort has been made to define and straitjacket their legal character to conform to being a company, trust, society, firm or a not-for-profit company. Even so, they continue to enjoy the benefit of income-tax exemption in an unprecedented and unparalleled manner, sometimes becoming mysterious receptacles of inexplicable monies. Just as there are shell companies that fulfil unstated purposes, there are shell political parties that serve an insidious intent. And thereby hangs a tale.
The mystery of political funding
That tale was partially unravelled by a recent BBC investigation that revealed extraordinary donations received by six Registered Unrecognised Political Parties (RUPPs). A well-known yet intriguing aspect of Indian politics — ugly and ubiquitous — stands exposed. Political parties and their benefactors thrive in this system, even if it appears reprehensible, unlawful and disturbing.
Earlier, the Association for Democratic Reforms (ADR) released a report on July 18, 2025, which found a 223% rise in the declared income of RUPPs in FY2022-23. It noted that, of the 2,764 RUPPs, only 739 had submitted their financial records for the year to the Election Commission of India (ECI), the sole custodian, under the law, of the fate and fortunes of political parties.
In a press note, “Cleaning up the Electoral System” (August 9, 2025), the ECI said it had ‘delisted’ 334 RUPPs out of 2,854 “as part of a comprehensive and continuous strategy…to clean up the electoral system.” It would be interesting to see whether the six parties in question are part of the ECI’s “continuous strategy”.
On October 16, 1994, T.N. Seshan, then Chief Election Commissioner of India, issued an order under the Election Symbols (Reservation and Allotment) Order, 1968, in which he highlighted the “adhocism” and the “sorry state of affairs prevailing in almost all political parties in the country, whether recognised National or State parties or registered-unrecognised parties”. He observed, “I have yet to come across any party whose affairs are being run in accordance with the provisions of its constitution or rules and regulations.” Through the order, T.N. Seshan put all political parties on “notice” to set their house in order, declaring that the ECI would not remain a “mute spectator”. In subsequent guidelines prescribing the format for registration under Section 29A of the Representation of the People Act (RPA), 1951, the ECI stated in paragraph 3(xxiii) that a party seeking registration must declare in its constitution that it will contest elections within five years of registration and that, if it does not “contest elections continuously for six years”, it shall “be automatically taken off the list of recognised parties”.
‘Taking off’ or ‘delisting’ does not mean deregistration, as the ECI is not generally empowered to deregister political parties. Similarly, even if RUPPs are ‘unrecognised’, they remain eligible to receive contributions under Section 29B of the RPA, while their tax treatment is governed by Section 13A of the Income-tax Act. “Recognition” is governed by Order 6 of the Election Symbols Order, which distinguishes between ‘recognized’ and ‘unrecognized’ political parties for the purpose of allotting symbols and lays down the criteria for their classification. T.N. Seshan amended the Symbols Order and introduced Order 16A, which empowers the ECI to “suspend or withdraw recognition of a recognised political party for its failure to observe MCC [Model Code of Conduct] or follow lawful directions and instructions of the Commission”. That provision sits, rather harmlessly, in the statute book, empowering an ECI that has generally been reluctant to strike.
Hence, whether ‘delisted’ or ‘unrecognized’, the parties remain eligible to receive contributions. It is a matter for investigation whether such donations continued to qualify for tax exemptions, given that the intent behind the delisting was to disqualify them.
The scale of ‘political wealth’
A paper published by Venkatesh Nayak, a senior researcher at the Commonwealth Human Rights Initiative (which was also reported by a leading media site), revealed that 22 political parties collectively had ₹18,742.31 crore at their disposal for the 2024 general election. This included funds in their kitty when the election was announced and ₹7,416.31 crore in donations raised between the announcement and the completion of the election. After the election, these parties had ₹14,848.46 crore remaining in their custody, including cash in hand, money held in bank accounts and fixed deposits, after incurring ₹3,861.57 crore in election-related expenditure during the campaign period, according to the accounts submitted to the ECI.
The study found that, over the last decade, the exchequer ‘lost’ ₹11,813 crore in taxes due to exemptions for political donations, with individual donors and Hindu Undivided Families overtaking corporates in donating to political parties. In FY2022-23, individual donors claimed exemptions worth ₹2,275.85 crore, dwarfing corporate claims of ₹514.4 crore and those of firms and associations, at ₹115.71 crore. Declared donations to political parties increased from ₹714 crore (43 parties) in 2015-16 to ₹7,203 crore (27 parties) in 2023-24. Yet, only 41.76% of total donations, amounting to ₹28,287 crore over nine years, were claimed as tax-exempt, raising questions about the remaining 58%. Mr. Nayak asks: “What incentives are driving them to donate without tax relief? The lack of transparency obscures answers.”
What added the thickest layer of secrecy was the so-called reform of electoral bonds introduced by the ruling party in 2018, which made the entire business of political finance murky. Although the scheme was declared unconstitutional by the Supreme Court of India in 2024, the details of the donations subsequently disclosed raised questions that remain unanswered. Most RUPPs were not eligible to receive electoral bonds, as they were restricted to parties that had “secured at least 1% of the votes in the latest Lok Sabha or State Legislative Assembly elections”. Who, then, made these contributions, and why?
The top court and ECI must act
Political parties have shown scant interest in transparency. They united in resisting the 2013 order of the Central Information Commission (CIC) bringing them under the Right to Information Act. Interestingly, besides the CIC, neither the ECI nor the Supreme Court has shown any inclination to enforce it. The Income-Tax Department and the Enforcement Directorate might not consider it a priority to scrutinise the accounts of political parties as they do those of ordinary taxpayers. The ECI lacks the mandate, intent or wherewithal to question the accounts mechanically submitted by political parties. Submission of the accounts is enough to comply with the letter of the law, even if its spirit gasps. How will that spirit be revived, and who will revive it?
It is incumbent upon the Court to order a court-monitored probe into the saga of electoral bonds and the alleged quid pro quo in the petitions pending before it. The probe should also examine the phenomenon of ‘insignificant’ RUPPs receiving and spending huge contributions without participating in the electoral process in any substantial manner. Surely, such “shell” parties cannot justify spending crores as “administrative expenses”.
Exercising its powers under Article 324 — described by the Court in the landmark judgment of Kanhiya Lal Omar vs R.K. Trivedi and Others as a “reservoir of authority” for the ECI — the ECI should order political parties to have their accounts audited by the Comptroller and Auditor General of India or its nominee. It should also consider imposing a limit on expenditure by political parties during elections, a measure it has recommended repeatedly. Tax exemptions on donations should be limited to the prescribed expenditure limit. All other donations that enrich the parties should be fully taxed.
The ECI should establish an automatic procedure to ‘deregister’ any RUPP that does not contest elections in accordance with its guidelines and develop a centralised digital portal where all registered parties can upload their financial data in standardised formats.
Let the ECI spend its energy and authority on ‘purifying’ the electoral environment rather than on chasing genuine electors off the electoral rolls. Until then, ‘We the People’ must continue to scream “Hami yaha chhau (we are here”).
Ashok Lavasa is a former Election Commissioner of India and a former Union Finance Secretary
Published – September 25, 2026 12:16 am IST
