Electoral bonds

Electoral bonds

Subject: Polity

Context:

Ahead of the assembly elections in Gujarat and Himachal Pradesh, the Finance Ministry has authorised the State Bank of India to issue and encash electoral bonds through its 29 authorised branches from November 9-15 this year.

Details:

• The Department of Economic Affairs (DEA)has amended the Electoral Bond Scheme 2018 to empower the Centre to specify an additional ‘15 days’ period where the bonds would be available for purchase in the year of general elections to legislative assembly of States and union territories with legislature.

The Electoral Bond Scheme

• Launched in 2018 to bring about transparency in electoral funding in India.
• Electoral bonds are interest-free bearer instruments used to donate money anonymously to political parties.
  • A bearer instrument does not carry any information about the buyer or payee and the holder of the instrument (which is the political party) is presumed to be its owner.
  • Electoral bonds are money instruments like promissory notes and do not bear the name of the donor and are, in effect, anonymous.
• Donors can purchase and subsequently donate the bonds to their political party of choice, which the party can then cash through its verified account within 15 days.
• There is no limit on the number of bonds an individual or company can purchase.
• SBI deposits bonds that a political party hasn’t cashed within 15 days into the Prime Minister’s Relief Fund. 
• Such bonds, which are sold in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore, can be bought from authorised branches of the State Bank of India by a KYC-compliant account holder.
• There is no limit on the number of electoral bonds that a person or company can purchase.
• How does it work?
  • As such, a donor is required to pay the amount — say Rs 10 lakh — via a cheque or a digital mechanism (cash is not allowed) to the authorised SBI branch. 
  • The donor can then give this bond (just one, if the denomination chosen is Rs 10 lakh, or 10, if the denomination is Rs 1 lakh) to the party or parties of their choice. 
  • Every party registered under section 29A of the Representation of the Peoples Act, 1951 (43 of 1951) and having secured at least one per cent of the votes polled in the most recent Lok Sabha or State election has been allotted a verified account by the Election Commission of India.
  • The political parties can choose to encash such bonds within 15 days of receiving them only through the allotted account and fund their electoral expenses.
  • On the face of it, the process ensures that the name of the donor remains anonymous.
    • Individuals, groups of individuals, NGOs, corporates, religious and other trusts are permitted to donate via electoral bonds without disclosing their details.
    • An amendment to the Finance Act 2017, the Union government has exempted political parties from disclosing donations received through electoral bonds. In other words, they don’t have to disclose details of those contributing by way of electoral bonds in their contribution reports filed mandatorily with the Election Commission every year.
      • Before the introduction of electoral bonds, political parties had to disclose details of all its donors, who have donated more than Rs 20,000.
    • It is to be noted that the electoral bonds provide no details to the citizens i.e. anonymity does not apply to the government of the day, which can always access the donor details by demanding the data from the State Bank of India (SBI).
  • Purchase period- 
    • by any person for a period of ten days (to be specified by the Centre) each in the months of January, April, July and October.
    • additional 30 days specified by the Centre in the year of general elections to the Lok Sabha.
    • Now given additional 15 days specified by the Centre in the year of general elections to legislative assembly of States and union territories with legislature.
  • Important feature- amendments in 2017 enabled corporates to make contributions to the political parties without any limits and with full anonymity.
    • Corporates were also exempted from disclosing the names of the recipients in their balance sheets.

Note-

• Government amendment to the Companies Act 2013 such that no companies are required to give details of political contributions in their annual profit and loss accounts.
• Before the electoral bonds scheme was announced, there was a cap on how much a company could donate to a political party–7.5 per cent of the average net profits of a company in the preceding three years. However, the government amended the Companies Act to remove this limit post introduction of the electoral bonds.
• Section 13A of Income Tax Act, as amended in 2017, states that no cash donation exceeding Rs 2,000 shall be received by a political party.
  • Section 13A of the Income-tax Act, 1961 confers tax exemption to political parties for income from house property, income by way of voluntary contributions, income from capital gains and income from other sources.
  • Only income under the head ‘salaries and income from business or profession’ are chargeable to tax in the hands of political parties in India.
• Amended  Section 29C of the Representative of People Act requires political parties to only declare details of donations made by cheque or any other banking route in excess of Rs 20,000. This essentially means that parties need not declare donations received by cheque/draft/electronic clearance, between Rs 2,000 and Rs 20,000.
• Amendment to the Foreign Contribution Regulation Act, 2010 (FCRA), allowing foreign companies with subsidiaries in India to fund Indian political parties.

Other modes of donation- Political parties can also receive cash donations of less than ₹2,000 from anonymous sources through cheque or by digital mode, in addition to electoral bonds.