India Supreme Court: To Hear Political Funding Cash Limit Challenge

• The Supreme Court is hearing a petition challenging the legal provision allowing political parties to receive cash contributions under ₹2,000 without donor identification.
• The petition, filed by Khem Singh Bhati, alleges significant discrepancies in political parties' income tax returns and contribution reports, claiming they are incomplete and delayed.
• It seeks a mandamus directing the Election Commission of India to scrutinize Form 24A reports, mandate independent audits, and impose a 'no cash' condition for party registration.
• The plea also challenges Section 13A(d) of the Income Tax Act, 1961, arguing it violates voters' constitutional right to information about political donations.
• The petitioner contends that transparency in funding is crucial for voters to make informed and rational electoral choices.

The contention is that the acceptance of substantial cash amounts, purportedly below the ₹2,000 threshold, obscures the true sources of political parties' funds, thereby infringing upon voters' fundamental rights.

The Supreme Court of India is scheduled to hear a significant challenge today, August 31, concerning the legal framework governing political funding. At the heart of the matter is the provision that permits political parties to accept cash contributions below ₹2,000 without requiring the same level of donor identification as larger sums. This challenge, initiated through a petition filed by Khem Singh Bhati, seeks to enhance transparency in the financial operations of political entities.

This particular political funding petition was previously taken up by the Supreme Court in November 2025, at which time a bench led by Justice Vikram Nath issued notice on the plea. The petition highlights an alleged 'huge discrepancy' between the income tax returns submitted by political parties and their reported contributions. Furthermore, it asserts that the audit reports and contribution reports filed by these parties are often incomplete, delayed, and lack essential details, hindering effective Election Commission of India political funding scrutiny.

The Khem Singh Bhati political funding petition seeks several specific directives from the Supreme Court to improve accountability. It requests a mandamus instructing the Election Commission of India (ECI) to rigorously scrutinize Form 24A contribution reports from all recognized political parties, both national and state-level. The petition further demands that parties be compelled to deposit any amounts received as contributions for which donor addresses or Permanent Account Numbers (PAN) have not been furnished.

Additionally, the plea urges the ECI to issue notices to defaulting political parties under paragraph 16A of the Election Symbol Order, 1968, questioning why their reserved symbols should not be suspended or withdrawn due to their failure to submit complete Form 24A contribution reports within the stipulated period. It also calls for all political parties' accounts to be maintained in a prescribed format and subjected to audits by independent auditors appointed by the ECI. Beyond the ECI, the petition seeks a directive for the Central Board of Direct Taxes (CBDT) to scrutinize the income tax returns and audit reports of political parties for the past five years, under sections 142 and 143 of the Income Tax Act, 1961, and to initiate appropriate proceedings for tax, penalty, and prosecution for non-compliance with Section 13A of the Income Tax Act, 1961, read with Section 29C of the Representation of People Act, 1951. A further demand is for the ECI to mandate, as a condition for political party registration and symbol allotment, that no amount can be received in cash.

A central component of the India Supreme Court political funding cash limit challenge is the direct assault on Section 13A(d) of the Income Tax Act, 1961. The petition argues that this provision violates Article 19(1)(a) of the Constitution, which guarantees the voter right to information political donations. The contention is that the acceptance of substantial cash amounts, purportedly below the ₹2,000 threshold, obscures the true sources of political parties' funds, thereby infringing upon voters' fundamental rights.

Section 13A, originally introduced by the Taxation Laws (Amendment) Act, 1978, exempts various forms of income for political parties—including interest on securities, income from house property, other sources, and voluntary contributions—from the computation of their total income. While sub-section (4B) was later inserted into Section 139, making it mandatory for all political parties to furnish an income return, the challenge specifically targets the loophole created by the cash contribution limit, which allows for anonymity in smaller donations.

The petition underscores the critical importance of transparency for the integrity of the electoral process. It asserts that voters possess a fundamental right to access information regarding all funds received by political parties. This knowledge, including details about donors and their backgrounds, is deemed essential for citizens to cast their votes rationally and intelligently. The argument posits that only with full disclosure of who finances political parties can voters make informed decisions about which party to support.

The legal team behind the petition includes Senior Advocate Vijay Hansaria, who settled the plea, and Advocates Nandini Rai, Kavya Jhawar, and Aashay Shukla, who drafted it. Advocate Jayesh Unnikrishnan filed the plea. The outcome of this challenge could significantly reshape the landscape of political funding in India, potentially leading to stricter disclosure requirements and greater accountability for political parties regarding their financial inflows.

Lawyers advising political parties or entities involved in political donations should closely monitor this Supreme Court petition, as a successful challenge to the ₹2,000 cash contribution rule and Section 13A(d) of the Income Tax Act could significantly alter disclosure requirements and increase compliance burdens for political funding in India.

Source: Original reporting via LiveLaw