Why in news?

A recent media investigation has revealed that six Registered Unrecognised Political Parties (RUPPs), all based in Gujarat, received donations of around Rs 1,700 crore in 2023-24. This is more than the combined donations of five nationally recognised parties, excluding the BJP, which received Rs 1,480 crore in the same period.

The revelation has raised serious concerns about opaque political funding and the misuse of tax exemptions by non-serious parties.

What’s in Today’s Article?

• What Are Registered Political Parties?
• The Problem of "Letter Pad Parties"
• Why the Six Gujarat Parties Remain Active?
• Poor Compliance and Lack of Transparency
• Way Forward

What Are Registered Political Parties?

• Political parties are associations or bodies of individuals formed by citizens.
• Section 29A of the Representation of the People Act, 1951 (RP Act) lays down the requirements for registering a political party with the Election Commission (EC).
• After scrutiny of the documents submitted, the EC registers the party as RUPP.
• RUPPs enjoy three key benefits:
  • Tax exemption on donations received under Section 12 of the Income Tax Act, 2025.
  • A common symbol for contesting general elections to the Lok Sabha or State Assemblies.
  • Twenty "star campaigners" during election campaigns.
• In return, RUPPs must fulfil certain obligations:
  • Maintain details of individual donors contributing more than Rs 20,000 in a financial year and submit them to the EC annually.
  • Under Section 29C of the RP Act, failure to do so leads to loss of income tax exemption.
  • Accept donations above Rs 2,000 only through cheque or bank transfer, as required by the Income Tax Act, 2025.

The Problem of "Letter Pad Parties"

• As per the EC notification, India had more than 2,800 RUPPs as of July, but only around 750 contested the 2024 general elections.
• The rest have earned the moniker "letter pad parties", existing largely on paper.
• The core issue is the EC's limited power. The RP Act does not explicitly empower the EC to de-register a party that fails to contest elections, conduct inner-party elections or file required returns.
• In Indian National Congress vs Institute of Social Welfare & Ors (2002), the Supreme Court held that the EC cannot de-register a political party under the RP Act, except in exceptional circumstances:
  • Registration obtained by fraud.
  • The party ceasing to owe allegiance to the Constitution.
  • The party being declared unlawful by the government.
• The EC periodically publishes lists of de-listed RUPPs. The October 2025 notification contained over 800 such parties.

Why the Six Gujarat Parties Remain Active?

• The six parties named in the investigation are Aam Janmat Party, Bharatiya National Janata Dal, Garib Kalyan Party, New India United Party, Satyawadi Rakshak Party and Swatantrata Abhivyakti Party.
• All remain on the EC's active list as of October 2025 because they collectively fielded 15 candidates in the 2024 Lok Sabha elections.
• Contesting a token number of seats allows them to retain their registration and tax benefits.

Poor Compliance and Lack of Transparency

• The Association for Democratic Reforms (ADR) periodically publishes reports on RUPP compliance.
• Its July 2025 report, analysing annual reports for 2022-23, found that reports of only 26 per cent of RUPPs were available in the public domain.
• Poor compliance with statutory requirements, combined with weak transparency, allows these parties to function as opaque channels for tax evasion and money laundering.

Way Forward

• Empower the EC to de-register parties. The Law Commission, in its 255th report, recommended amendments to allow de-registration of a party that fails to contest elections for ten consecutive years.
  • The EC, in its 2016 memorandum on electoral reforms, also sought powers to de-register parties.
  • These reforms would enable action against non-serious parties that serve merely as a front for illegal financial transactions.
• Strengthen enforcement. Even if de-registration powers are granted, parties may contest a few seats simply to meet the statutory requirement while continuing to misuse tax exemptions.
  • In today's digital environment, the Income Tax Department and other enforcement agencies can easily monitor the transactions of such parties.
  • Strict action against wrongdoing would act as a deterrent.
• Introduce a vote threshold for tax exemptions. The EC had earlier suggested that tax exemptions be given only to parties that win seats in the Lok Sabha or State Assemblies.
  • Analysts consider this undemocratic and extreme, since many parties contest elections consistently without winning.
  • Instead, they propose a vote percentage threshold, similar to the 1 per cent vote threshold used for allotting common symbols to RUPPs.
  • Only parties crossing this threshold should be eligible for tax exemptions on donations.

Conclusion

The RUPP framework was designed to nurture political participation, but weak statutory provisions and poor compliance have turned it into a loophole for opaque funding.

Empowering the EC to de-register non-serious parties, strengthening enforcement and linking tax exemptions to a reasonable vote threshold would restore integrity to political funding without stifling genuine small parties.