The Union finance ministry has set up a special investigation unit to regulate the funding and donations made to political parties.

The unit recently got approval from the office of Finance Minister Pranab Mukherjee.

The new unit will function under the Central Board of Direct Taxes and will also deal with highly sensitive matters such as those related to armed units of criminal investigation of the Income Tax department, and work of the marine and air snoop units for special anti-tax evasion operations.

The unit -- Investigation 5 -- has been created against the backdrop of the Election Commission's creating a separate Expenditure Monitoring cell within its establishment last year and deploying huge strength of I-T sleuths of investigation wings across the country for conduct of polls.

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Official sources said the unit will be headed by the Commissioner rank officer of the I-T department and will "monitor election-related expenditure, regulate political funding and enforce compliance to tax laws by political parties and groups" including checking exemptions granted to parties.

The unit will report to the CBDT chairman, who is handling the investigation charge himself, in view of the intensive activity underway to unearth black money in the country.

Besides, the official said, another unit (number 4) has been created to monitor the sensitive taxpayer information database of I-T department and scrutinise classified data received from Financial Intelligence Unit and stock and commodities regulators.

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"The two new units add to the existing three investigation units of the CBDT which dealt with various counter tax evasion tasks. The new units will deal with specialised subjects and will plan strategies for issues which are an emerging challenge for the I-T department," a senior finance ministry official said.

The Unit 5 will also deal with matters related to the newly crated Directorate of Criminal Investigation (I-T) which includes provision to arm 'Special Agents' for undertaking specific intelligence gathering and probe duties including those which have cross-border ramifications and terror funding.

The unit will also keep tab of 'very high net worth individuals' and 'high net worth individuals' to "deepen the tax base in these groups of taxpayers".

The other three units are mandated to monitor and oversee works of various I-T investigation and intelligence units including search and seizure operations.