Political Funding in India: Addressing Regulatory Gaps in RUPPs

Context

Former Election Commissioner Ashok Lavasa has drawn attention to concerns surrounding political funding after a BBC investigation examined suspicious donations involving Registered Unrecognised Political Parties (RUPPs). The issue has renewed debate over financial transparency, inactive political parties, tax exemptions and the regulatory powers available to the Election Commission of India (ECI).

Understanding RUPPs and Their Legal Position

A Registered Unrecognised Political Party (RUPP) is a political party registered with the ECI under Section 29A of the Representation of the People Act, 1951 (RPA) but not meeting the electoral performance requirements for recognition as a State or National Party.

Political parties do not have a comprehensive constitutional definition. However, their formation is protected under Article 19(1)(c), while the Tenth Schedule recognises their role in the anti-defection framework.

Section 29A provides the principal framework for registration. The Supreme Court has held that the ECI’s power to formally deregister political parties is limited and can generally be exercised only in exceptional circumstances, such as fraudulent registration. The ECI can, however, delist RUPPs that have not contested an election for six consecutive years, which is different from statutory deregistration.

Tax benefits also form an important part of the framework. Under Section 13A of the Income-tax Act, registered political parties can receive conditional tax exemptions subject to requirements relating to audited accounts, donation records, contribution reporting and timely filing of returns.

Scale of the Financial Transparency Challenge

The growth of political funds among RUPPs has raised questions about whether existing disclosure mechanisms are adequate. Cited Association for Democratic Reforms (ADR) data indicates that RUPP income rose by 223% in FY 2022–23, while only 739 of 2,764 parties reportedly submitted audited accounts.

The ECI delisted 334 of 2,854 RUPPs in August 2025 because of prolonged electoral inactivity and related non-compliance. This illustrates the difficulty of maintaining an accurate and accountable political-party registry.

Political finance is also substantial beyond RUPPs. A cited Centre for Human Rights Initiatives (CHRI) study reported that 22 political parties held ₹18,742.31 crore, received ₹7,416.31 crore in new donations and spent ₹3,861.57 crore during the 2024 election period. Their reported reserves subsequently stood at approximately ₹14,848.46 crore.

The tax dimension adds another layer of concern. An estimate cited in the material places revenue forgone through tax exemptions on political contributions at ₹11,813 crore over a decade.

Donor patterns have also changed. In FY 2022–23, individuals and Hindu Undivided Families reportedly claimed ₹2,275.85 crore in tax deductions for political contributions, compared with ₹514.4 crore by companies and ₹115.71 crore by firms and associations.

At the same time, reported donations and tax deductions do not always correspond. Of ₹28,287 crore in political donations reported over nine years, only 41.76% reportedly resulted in tax-deduction claims. The remaining amount requires scrutiny, but the absence of a deduction claim by itself does not establish financial wrongdoing.

Key Structural Vulnerabilities

Inactive Parties and Regulatory Gaps

Political parties that remain registered despite not participating in elections or regularly filing financial statements can create opportunities for weak oversight. Such gaps can complicate verification of donations, expenditure and continued eligibility for tax benefits.

Transparency After Electoral Bonds

The Supreme Court struck down the Electoral Bond Scheme in 2024, bringing renewed attention to transparency in political donations, donor disclosure and safeguards against undue influence. The broader challenge is to balance legitimate political contributions with public accountability.

RTI and Political Parties

The Central Information Commission’s 2013 decision regarding the status of certain national political parties under the Right to Information framework highlighted the importance of transparency in political organisations. However, implementation and the legal position have remained contested.

Absence of a General Party Expenditure Ceiling

Candidates are subject to statutory expenditure limits, whereas political parties do not face an equivalent overall statutory ceiling on election expenditure. This creates a significant difference between the regulation of candidate-level and party-level campaign finance.

Way Forward

Strengthen independent auditing: Political parties could be subjected to audits by suitably independent auditors, including a framework involving CAG-empanelled auditors, with legislation clearly defining the ECI’s supervisory role.

Provide clearer deregistration provisions: Parliament could establish explicit statutory grounds for deregistration, including prolonged electoral inactivity, proven financial fraud and persistent failure to meet disclosure obligations, while ensuring due process.

Create standardised financial disclosures: A common digital platform could require parties to publish audited accounts, donor information and itemised expenditure in standardised and easily accessible formats.

Review campaign expenditure regulation: Policymakers could examine whether statutory controls on party-level campaign expenditure are necessary alongside clearer rules governing tax exemptions and political contributions.

Investigate credible financial irregularities: Specific evidence of suspicious donations or financial misconduct should be subject to independent investigation, with appropriate judicial oversight and procedural safeguards where required.

Conclusion

The RUPP issue highlights the broader challenge of ensuring that political registration, financial disclosure and tax benefits operate within a transparent regulatory framework. Strengthening audit requirements, improving public disclosure and establishing clearer rules for inactive or non-compliant parties can help ensure that political finance remains accountable while preserving legitimate political participation.

Source : The Hindu