Electoral bonds
GS PAPER II: Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.
Context: Electoral bonds worth ₹695 crore sold during recent Assembly polls, highest amount in Kolkata.
- The amount sold was the highest-ever for any Assembly elections since the scheme started in 2018.
What is an electoral bond?
- Started by the government in 2018, the bonds scheme allows any Indian citizen or company to purchase the bonds sold by the SBI in denominations of ₹1,000, ₹10,000, ₹1 lakh, ₹10 lakh and ₹1 crore and give them to political parties anonymously.
- It is like a promissory note that can be bought by any Indian citizen or company incorporated in India from select branches of State Bank of India.
- The citizen or corporate can then donate the same to any eligible political party of his/her choice.
- The bonds are similar to bank notes that are payable to the bearer on demand and are free of interest.
- An individual or party will be allowed to purchase these bonds digitally or through cheque.
- A donor with a KYC-compliant account can purchase the bonds and can then donate them to the party or individual of their choice. The electoral bond will be valid only for fifteen days.
- The electoral bonds will not bear the name of the donor. Thus, the political party might not be aware of the donor's identity.
Eligibility Conditions
- Any party that is registered under section 29A of the Representation of the Peoples Act, 1951 (43 of 1951) and has secured at least one per cent of the votes polled in the most recent General elections or Assembly elections is eligible to receive electoral bonds.
- The party will be allotted a verified account by the Election Commission of India (ECI) and the electoral bond transactions can be made only through this account.
Are electoral bonds taxable?
- Donations through this bond would be tax deductible.
- A donor will get a deduction and the recipient, or the political party, will get tax exemption, provided returns are filed by the political party.
Why were electoral bonds introduced in India?
- To ensure that all the donations made to a party would be accounted for in the balance sheets without exposing the donor details to the public.
- It would keep a tab on the use of black money for funding elections.
Why is there a controversy over electoral bond?
- Experts are of the view that to bring greater transparency, the government must not restrain from allowing details of such donations to be made public.
- Experts say that since neither the purchaser of the bond nor the political party receiving the donation is required to disclose the donor’s identity, the shareholders of a corporation will remain unaware of the company’s contribution and voters, too, will have no idea of how, and through whom, a political party has been funded.
- Since the identity of the donor has been kept anonymous, it could lead to an influx of black money.
- Some others allege that the scheme was designed to help big corporate houses donate money without their identity being revealed, the concept of donor "anonymity" threatens the very spirit of democracy.
- Some political experts said that the donations made through electoral bonds were equivalent to money laundering.
Restrictions that were done away with after the introduction of amendment in the Finance Bill?
- Earlier, no foreign company could donate to any political party under the Companies Act
- A firm could donate a maximum of 7.5 per cent of its average three year net profit as political donations according to Section 182 of the Companies Act
- As per the same section of the Act, companies had to disclose details of their political donations in their annual statement of accounts.
The government moved an amendment in the Finance Bill to ensure that this proviso would not be applicable to companies in case of electoral bonds.
Thus, Indian, foreign and even shell companies can now donate to political parties without having to inform anyone of the contribution.
Election Commission of India's and Reserve Bank of India view on electoral bonds:
- The Election Commission said that it is not against the Electoral Bonds Scheme, but it did not approve of anonymous donations made to political parties. It want full disclosure and transparency.
- Reserve Bank of India is critical of this scheme. It had warned the government that the bonds would "undermine the faith in Indian banknotes and encourage money laundering."
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