In his budget speech on 1 February, Union Finance Minister Arun Jaitley proposed the introduction of electoral bonds as a campaign finance reform.
Electoral Bond is a financial instrument for making donations to political parties. These are issued by Scheduled Commercial banks upon authorisation from the Central Government to intending donors, but only against cheque and digital payments (it cannot be purchased by paying cash).
These bonds shall be redeemable in the designated account of a registered political party within the prescribed time limit from issuance of bond.
Required amendments to the Reserve Bank of India Act, 1934 (Section 31(3)) and the Representation of People Act, 1951 were made through Section 133 to 136 of Finance Bill, 2017.
Government is in the process of framing a Scheme in this regard.
Electoral Bond is an effort made to cleanse the system of political funding in India. The scheme of electoral bonds addresses the concerns of donors to remain anonymous to the general public or to rival political parties.
Further, in accordance with the suggestion made by the Election Commission, the maximum amount of cash donation that a political party can receive is stipulated at Rs. 2000/- from one person, pursuant to the announcement in Union Budget 2017-18.
However, Political parties will be entitled to receive donations by cheque or digital mode from their donors. Every political party would have to file its return within the time prescribed in accordance with the provision of the Income-tax Act.
Existing exemption to the political parties from payment of income-tax would be available only subject to the fulfilment of these conditions.
As per Section 29C(1) of The Representation of People Act, 1951, the political party needs to disclose the details of non-governmental corporations and persons who donate more than Rs. 20,000 to it in a financial year. Vide the Finance Bill 2017, it has been specified that no report needs to be prepared in respect of the contributions received by way of an electoral bond.
This reform is expected to bring about greater transparency and accountability in political funding, while preventing future generation of black money.
Following are features of Electoral Bonds as announced by Jaitley:
The Bonds, which will resemble a promissory note and not an interest-paying debt instrument, will be sold by authorised banks and can be deposited in notified accounts of political parties within the duration of their validity.
The bearer bonds can be purchased by corporate donors and donated to political parties without revealing their identity.
Every political party has to notify one bank account (where the bonds can be deposited). Within a very short period of time, which will be notified in the scheme, it will be days not months these will be redeemable only in that account of the political party.
Bonds can be purchased using cheque or e-payments only. So in the hands of the recipient it is clean money, in the hands of donor it will be tax paid money.
Some of the political donations has stopped coming by cash, but that is only a small percentage. The bulk of it still never came by a cheque. And therefore consultations with a very large body of people reveal that for good reasons the donors wanted to donate tax paid clean money for political system. Political parties are part of democracy.
So a system was devised where the there will confidentiality of the donor will be maintained but the money becomes “absolutely clean.”
Electoral bonds will be issued by a notified bank for specified denominations. If you are keen to donate to a political party, you can buy these bonds by making payments digitally or through cheque. You are then free to gift the bond to a registered political party. The bonds will likely be bearer bonds and the identity of the donor will not be known to the receiver.
The party can can convert these bonds back into money via their bank accounts. The bank account used must be the one notified to the Election Commission and the bonds may have to be redeemed within a prescribed time period.
Present Situation:
Today, most political parties use the lax regime on donations to accept cash donations from anonymous sources. Nearly 70 per cent of the ₹11,300 crore in party funding over an 11-year period came from unknown sources, according to the Association for Democratic Reforms (ADR).
Currently, political parties are required to report any donation of over ₹20,000 to the IT department. But there has been a trend of more donations flowing by way of hard cash in smaller amounts. To fix this, the Budget has reduced the disclosure limit to ₹2,000 and insists that any amount over this must be paid through cheque or the digital mode. The idea is that electoral bonds will prompt donors to take the banking route to donate, with their identity captured by the issuing authority.
This is not the first time that the government has issued bearer bonds.
In 1987, the then government floated a development bond called Indira Vikas Patra, which was issued through post offices. Since this had the characteristic of a bearer bond, it conferred anonymity to the holders of this bond. However, it was finally discontinued after it was suspected that these bonds were used as a conduit for laundering black money.