The Crux: Income Data in India Is Unreliable
As a result, when reservation or subsidy policies rely solely on declared income, they become vulnerable to gaming. Those with money and connections can easily understate their income and claim benefits meant for genuinely poor individuals.
A New Scam: Political Donations as a Tax Evasion Loophole
One of the lesser-known but growing tricks used by upper-middle-class professionals, including IT employees, involves "donations" to political parties. Here’s how it works:
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An individual “donates” a sum (say ₹10 lakh) to a Registered Unrecognized Political Party (RUPP).
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Under Section 80GGC of the Income Tax Act, the donation is 100% tax-exempt.
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The political party returns 90–95% of the donation in cash to the donor, keeping a small cut (usually 5–10%).
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The donor ends up paying little to no income tax, and the party earns commission income through laundering.
This has been documented by the Income Tax Department in recent years. A major ₹110 crore scam was unearthed in Hyderabad involving precisely this method.
Why This Undermines Income-Based Reservation
Income-based reservations like the EWS quota require applicants to fall below an income threshold (currently ₹8 lakh/year). But:
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If you can mask your real income through fake donations, benami transactions, or under-the-table cash deals, you can qualify.
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The system then rewards cheaters and penalizes honest taxpayers who disclose their true income.
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It creates a perception of unfairness, further polarizing public opinion on affirmative action policies.
How to Fix This: Policy and Enforcement Solutions
1. Crack Down on Fake Political Parties
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The Election Commission and Income Tax Department must audit RUPPs and de-register those without legitimate political activity.
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Link donations with verified Aadhaar-PAN identities, and mandate digital trails for all contributions.
2. Audit Claims Under Section 80GGC
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Any large donation claiming a full deduction should automatically trigger a red flag in the tax system.
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Use AI-based anomaly detection to spot patterns (e.g., high donations followed by high cash withdrawals).
3. Make Income Proof More Robust
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Instead of relying solely on IT returns, mandate a composite economic criteria:
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Property ownership
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Luxury vehicle data (VAHAN)
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School fees paid for children
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Foreign travel records
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GST filings (for business owners)
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4. Reward Whistleblowers
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Introduce a confidential whistleblower mechanism with monetary rewards for reporting fraudulent donation rackets or income under-reporting.
5. Strengthen Digital Forensics and E-Governance
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Integrate GST, PAN, Aadhaar, and property records to cross-verify economic standing.
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Use machine learning to flag inconsistencies between lifestyle and declared income.
Conclusion
Income-based reservation is a sound idea—but only on paper. In reality, India’s parallel cash economy and weak enforcement mechanisms make it easy for high-income individuals to masquerade as poor. Until we crack down on tax evasion and reform the political funding loopholes, economic reservations will remain vulnerable to abuse.
If India wants to move toward a more just, meritocratic, and efficient welfare state, the first step must be to fix the system that measures income. Without that, any policy based on it is destined to fail.
