📰 ITR Scrutiny for Unregistered Political Parties and Institutions Set for FY26
Published on June 16, 2025 | Category: Income Tax News
⚠️ Unregistered Entities to Face Compulsory Scrutiny
The Income Tax Department will compulsorily scrutinize returns filed by political parties, educational bodies, and scientific institutions that lack official registration. The department issued these updated scrutiny guidelines for FY2025–26 on June 13.
This move targets organizations that claimed tax exemptions or deductions in ITR-7 without valid registration or approval under relevant sections of the Income Tax Act.
📆 Deadline and Key Conditions
The department will serve notices by June 30, 2025, for ITRs filed in FY2024–25. The scrutiny will focus on cases where:
- Approvals under sections like 12A, 12AB, 10(23C), and 35(1) were canceled or withdrawn before March 31, 2024.
- Yet, the organization claimed deductions or exemptions in ITR-7.
Note: If a court or appellate body has reversed a cancellation order, the return will not fall under this clause.
🏦 Unregistered Political Parties Under Lens
This parameter has gained importance after media reports revealed over ₹10,000 crore in donations to 3,260 unregistered political parties (RUPPs) between 2022 and 2024. Many of these funds allegedly moved through shell companies via complex banking networks.
The Election Commission of India noted that 75% of RUPPs didn’t contest elections, and 90% failed to submit compliance reports, making them ineligible for tax exemptions.
💰 Revised Thresholds for Tax Additions
The new guidelines also double the tax addition threshold for compulsory scrutiny:
- ₹50 lakh or more for taxpayers in metro areas: Ahmedabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, Mumbai, and Pune.
- ₹20 lakh or more for taxpayers in other regions.
These apply when the addition becomes final—either no appeal is filed or higher authorities uphold the decision, even if a pending appeal exists.
🔍 Survey Cases Also Under Scrutiny
The department will also scrutinize entities that underwent a survey under Section 133A (excluding 133A-2A) after April 1, 2023.
This provision allows tax officials to enter, inspect, and seize documents from premises if they suspect undeclared income or improper documentation.
🧾 Understanding ITR-7
ITR-7 is designed for:
- Charitable trusts
- Political parties
- Educational institutions
- Scientific research bodies
- Universities and hospitals
These entities can file ITR-7 to claim exemptions, but valid registration is mandatory under relevant Income Tax Act sections.
📌 Conclusion
The Income Tax Department’s scrutiny plan for FY26 aims to tighten compliance and reduce misuse of tax exemptions. Entities operating without valid approval but claiming deductions in ITR-7 should expect rigorous assessment.
