Political Party Finance: Shell Parties, Tax Breaks and the Transparency Gap
India's political parties remain largely unregulated entities, with shell parties, tax exemptions and opaque donations raising transparency concerns.
Political parties, the central actors of India's electoral democracy, occupy a peculiar legal position. The Constitution mentions them only in the Tenth Schedule; elsewhere they function as "associations" exercising rights under Article 19. They are not defined as companies, trusts, societies, firms or not-for-profit entities, yet they enjoy income-tax exemptions on an exceptional scale. This combination, observers note, allows some to function as shell parties serving purposes that remain unclear.
A recent investigation into six Registered Unrecognised Political Parties (RUPPs) brought fresh attention to the scale of donations such entities receive. The findings sit alongside earlier data: a July 18, 2025 report by the Association for Democratic Reforms recorded a 223% rise in the declared income of RUPPs in FY2022-23. Of 2,764 such parties, only 739 submitted financial records to the Election Commission of India (ECI), the statutory custodian of party affairs.
On August 9, 2025, the ECI said it had delisted 334 of 2,854 RUPPs as part of a "comprehensive and continuous strategy" to clean up the electoral system. Whether the six parties under scrutiny fall within that strategy remains an open question.
The regulatory framework dates back decades. On October 16, 1994, then Chief Election Commissioner T.N. Seshan issued an order under the Election Symbols (Reservation and Allotment) Order, 1968, flagging "ad hocism" and a "sorry state of affairs" across parties, and put them on notice to set their house in order. Subsequent guidelines under Section 29A of the Representation of the People Act, 1951 required a party seeking registration to declare it would contest elections within five years and would be automatically removed from the list of recognised parties if it did not contest continuously for six years.
Delisting, however, is not deregistration, since the ECI is generally not empowered to deregister parties. Unrecognised parties 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 itself is governed by Order 6 of the Symbols Order, which distinguishes recognised from unrecognised parties for symbol allotment. Seshan also introduced Order 16A, empowering the ECI to suspend or withdraw recognition for failure to observe the Model Code of Conduct or lawful directions, a provision that has rarely been invoked.
A paper by Venkatesh Nayak of the Commonwealth Human Rights Initiative found that 22 political parties collectively had ₹18,742.31 crore at their disposal for the 2024 general election, including ₹7,416.31 crore raised between the announcement and completion of the polls. After the election, they held ₹14,848.46 crore, having spent ₹3,861.57 crore on the campaign, according to accounts submitted to the ECI.
The study also estimated that the exchequer lost ₹11,813 crore in taxes over a decade due to exemptions on political donations. Individual donors and Hindu Undivided Families have overtaken corporates: in FY2022-23, individual donors claimed exemptions worth ₹2,275.85 crore, against corporate claims of ₹514.4 crore and ₹115.71 crore for firms and associations. Declared donations rose from ₹714 crore across 43 parties in 2015-16 to ₹7,203 crore across 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, leaving questions about the remaining 58%.
The electoral bond scheme introduced in 2018 added a further layer of secrecy. Though the Supreme Court struck it down in 2024, the disclosures that followed left unanswered questions. Most RUPPs were ineligible to receive electoral bonds, which were restricted to parties securing at least 1% of votes in the latest Lok Sabha or State Legislative Assembly elections.
Political parties have shown little enthusiasm for transparency. They united in resisting a 2013 Central Information Commission order bringing them under the Right to Information Act. The debate over how parties are funded, and how little is disclosed, continues.