Shell Parties and Missing Accounts: Ashok Lavasa on the Murky World of Political Finance

Source: Original editorial ↗ The Hindu

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The Lift Line

“Just as there are shell companies that fulfil unstated purposes, there are shell political parties that serve an insidious intent.”

Why This Editorial Matters for Your Exam

Political finance is one of the most asked governance themes in GS2, and this Lead is written by Ashok Lavasa, a former Election Commissioner and Union Finance Secretary. It sets out the legal framework (RPA Sections 29A and 29B, the Symbols Order, and the income-tax exemption under Section 13A of the Income-tax Act, 1961, whose place is now taken by the Income-tax Act, 2025), the data on registered unrecognised parties, and a list of reforms. It is a ready reckoner for any question on electoral reform or money in politics.

GS Paper 2: Salient features of the Representation of People’s Act; constitutional bodies (ECI); issues in the functioning of political parties. GS Paper 4: Probity in public life; transparency and accountability.

Concept	Meaning	Why it is testable
Registered unrecognised party (RUPP)	A party registered with the ECI under Section 29A but not recognised as a national or State party	Can receive contributions but not a reserved symbol
Recognition	Status as a national or State party under the Election Symbols Order, 1968	Decides reserved symbols
Delisting	Removal from the ECI’s list of active RUPPs	Not the same as deregistration
Section 29B, RPA	Lets parties accept contributions from persons and companies (other than government companies)	Applies to RUPPs too
Section 13A, Income-tax Act, 1961 (the Income-tax Act, 2025 replaced the 1961 Act from April 2026 without changing tax policy)	Exempts party income, subject to conditions	The core of the tax subsidy

Background and Context

Parties in the Constitution. Parties are mentioned only in the Tenth Schedule (anti-defection); they exist as associations under Article 19. Their legal form is not fixed as a company, trust or society.

The data the author cites:

Source	Finding
ADR report, July 2025 (cited by the author)	223 per cent rise in declared income of RUPPs in 2022-23; only 739 of 2,764 RUPPs filed financial records
ECI press note, August 2025 (cited by the author)	334 RUPPs “delisted” out of 2,854
CHRI study (Venkatesh Nayak)	22 parties had Rs 18,742.31 crore for the 2024 general election, including Rs 7,416.31 crore raised during it; Rs 3,861.57 crore spent
CHRI study, tax	Exchequer “lost” Rs 11,813 crore in a decade through exemptions for donations; only 41.76 per cent of declared donations were claimed as tax-exempt
A BBC investigation	Unusually large donations to six RUPPs

The ECI’s history of trying. On 16 October 1994, Chief Election Commissioner T.N. Seshan issued an order noting the “sorry state of affairs” in party functioning and warning that the ECI would not be a “mute spectator”. He also inserted Paragraph 16A in the Symbols Order, letting the ECI suspend or withdraw recognition for failure to follow the Model Code or its lawful directions. The ECI’s registration guidelines require a party to contest within five years of registration.

The electoral bonds. The 2018 scheme allowed anonymous donations through bank instruments, available only to parties with at least 1 per cent of the vote in the last election. The Supreme Court struck it down in 2024 in Association for Democratic Reforms v. Union of India.

The Analysis

1. Tax exemption without scrutiny. Parties enjoy an income-tax exemption “in an unprecedented and unparalleled manner”, yet the accounts they file are accepted mechanically. The Income Tax Department and the Enforcement Directorate, the author suggests, might not consider it a priority to scrutinise party accounts as they do those of ordinary taxpayers.

2. Delisting is not deregistration. The ECI’s clean-up removed RUPPs from its list, and the ECI is not generally empowered to deregister a party. The author argues that delisted and unrecognised parties remain eligible to receive contributions under Section 29B, and that whether such donations still qualified for tax exemption “is a matter for investigation”. The ECI’s press note had said delisted parties would no longer be eligible for any benefit under Sections 29B and 29C read with the Income-tax Act.

3. Donations without exemption. Donations rose from Rs 714 crore (43 parties, 2015-16) to Rs 7,203 crore (27 parties, 2023-24), yet most were not claimed as tax-exempt. Why would donors forgo a tax benefit? “The lack of transparency obscures answers,” says Venkatesh Nayak of the Commonwealth Human Rights Initiative, whom the author quotes.

4. Resistance to transparency. Parties united against the Central Information Commission’s 2013 order bringing them under the RTI Act, and neither the ECI nor the Supreme Court has enforced it.

5. What the author proposes. A court-monitored probe into electoral bonds and into small parties spending crores; CAG audit of party accounts, which he says the ECI can order under Article 324; a cap on party election expenditure; tax exemptions limited to that cap; automatic deregistration of RUPPs that do not contest; and a digital portal for party finances.

The precision that earns marks. The expenditure ceiling in Indian elections applies to candidates (Section 77, RPA, and the Conduct of Election Rules), not to parties. Party spending on a campaign is unlimited, which is the gap the author wants closed.

Data and Institutions Vault

Prelims-grade facts:

Law:

• Parties are registered under Section 29A of the Representation of the People Act, 1951.
• Section 29B lets parties accept contributions from persons and companies other than government companies.
• Section 29C requires parties to report donations above Rs 20,000 to the ECI.
• Party income is tax-exempt, subject to conditions (Section 13A, Income-tax Act, 1961; the Income-tax Act, 2025 replaced it from April 2026).
• Recognition as a national or State party is governed by the Election Symbols (Reservation and Allotment) Order, 1968.
• The Supreme Court struck down the electoral bonds scheme in ADR v. Union of India (2024).

Data (as cited by the author):

• ADR (July 2025): 223 per cent rise in RUPP income in 2022-23; only 739 of 2,764 RUPPs filed records.
• The ECI delisted 334 RUPPs in August 2025.
• CHRI: Rs 11,813 crore in taxes forgone over a decade through exemptions for political donations.

Prelims, the traps:

• The ECI has no general power to deregister a party; delisting is not deregistration.
• Spending limits apply to candidates, not to parties.
• Parties find mention in the Constitution only in the Tenth Schedule.

⚠️ Watch the trap: A registered party is not necessarily a recognised party; recognition, under the Symbols Order, depends on electoral performance.

The Debate

For tighter regulation. Unaccountable money distorts competition, enables quid pro quo and weakens trust. Parties that enjoy public subsidies through tax exemptions owe public accountability.

For caution. Parties are voluntary associations with Article 19 protection; heavy regulation could burden new parties; audits of opposition parties by bodies linked to the executive raise concerns; and some opacity protects small donors from retaliation.

The balanced verdict. Transparency and fairness can be reconciled: statutory power to deregister inactive parties, independent audit, full disclosure above a small threshold, and a cap on party spending would curb shell parties without stifling genuine political competition.

How to Think About This

Follow the money and the mandate. For any question about regulation of a powerful institution, ask who receives money, who can see where it comes from, who audits it, and who has the power to act. Here parties receive tax-subsidised money, disclosure is partial, audit is formal and the ECI’s power is limited. Mapping those four links shows where reform must go.

Diagram-in-Words

Takeaway Box

• Framework: Sections 29A, 29B and 29C of the RPA; the income-tax exemption (Section 13A of the 1961 Act, now under the Income-tax Act, 2025); the Symbols Order, 1968.
• Problem: RUPPs that rarely contest but receive large sums; delisting does not stop contributions; audits are formal.
• Data: ADR (2025) 223 per cent rise in RUPP income; CHRI Rs 11,813 crore in taxes forgone over a decade.
• History: Seshan’s 1994 order; the CIC’s 2013 RTI order; electoral bonds struck down in 2024.
• Reforms: CAG audit, party spending cap, tax exemption linked to the cap, deregistration of inactive parties, a digital portal.

Sources: The Hindu, Election Commission of India

Source: Shell Parties and Missing Accounts: Ashok Lavasa on the Murky World of Political Finance — Ujiyari.com | Free UPSC & State PCS Editorial Analysis

Key Arguments at a Glance

Ashok Lavasa, a former Election Commissioner and Union Finance Secretary, argues that political parties, barely recognised in the Constitution yet generously tax-exempt, have become receptacles of unexplained money, with registered unrecognised parties (RUPPs) acting as shells, and that the ECI should use its Article 324 powers to audit, cap and deregister.

✓ Supporting

• An ADR report of 18 July 2025 found a 223 per cent rise in the declared income of RUPPs in 2022-23, while only 739 of 2,764 RUPPs had filed financial records with the ECI.
• The ECI’s “delisting” of 334 RUPPs in August 2025 is not deregistration; the author argues that delisted and unrecognised parties remain eligible to receive contributions under Section 29B of the Representation of the People Act, 1951, and that whether their donations still qualified for tax exemption is a matter for investigation; the ECI’s own press note said delisted parties would no longer get benefits under Sections 29B and 29C.
• A CHRI study found that over a decade the exchequer lost Rs 11,813 crore in taxes due to exemptions for political donations, and that only about 42 per cent of declared donations were claimed as tax-exempt.
• Parties resisted the Central Information Commission’s 2013 order bringing them under the RTI Act, and the electoral bonds scheme of 2018, struck down in 2024, added secrecy.

⚠ Counter

Parties are voluntary associations protected by Article 19, and the ECI lacks an express statutory power to deregister them; heavier regulation of small parties could burden genuine new entrants, and CAG audit of parties would raise questions about executive oversight of political opponents.

→ Way Forward

The author proposes that the ECI order audits of party accounts by the CAG or its nominee, cap party expenditure in elections, limit tax exemptions to that cap, automatically deregister RUPPs that do not contest, create a digital portal for standardised party accounts, and that the Supreme Court order a court-monitored probe into electoral bonds.