Electoral Bonds

  What is the Electoral Bonds Scheme?  
  • The Finance Bill, 2017 introduced “electoral bonds” — interest-free bearer bonds (like Promissory Notes) that can be purchased from specified branches of the State Bank of India in a designated 10-day window in every quarter of the financial year.
  • The scheme, which was notified on January 2, 2018, allows individuals and domestic companies to present these bonds — issued in multiples of Rs.1,000, 10,000, 1 lakh, 10 lakh, and 1 crore — to political parties of their choice, which have to redeem them within 15 days.
  • Buyers of the bonds have to submit full KYC details at the time of buying. But the beneficiary political party is not required to reveal the identity of the entity that has given it the bond(s).
  • Electoral bonds can be purchased by any citizen of India – singly or along with other individuals – or a body incorporated in India.
Is this instrument unique to India?
  •  According to Association for Democratic Reforms (ADR), non-profit election research group that while there have been electoral trusts in India, the concept of electoral bonds is new.
  • If fact, experts are reportedly unable to recall any such approach to party funding practiced in any democracy around the world.
What are the other conditions?
  • Every 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 Lok Sabha or State election will be allotted a verified account by the Election Commission of India. Electoral bond transactions can be made only via this account.
  • The bonds will be available for purchase for a period of 10 days each in the beginning of every quarter, i.e. in January, April, July and October as specified by the Central Government.
  • An additional period of 30 days shall be specified by the Central Government in the year of Lok Sabha elections.
  • The electoral bonds will not bear the name of the donor. In essence, the donor and the party details will be available with the bank, but the political party might not be aware of who the donor is.
  • The intention is to ensure that all the donations made to a party will be accounted for in the balance sheets without exposing the donor details to the public.
Will it be tax deductible?
  • During the Budget presentation in February 2017, the Finance Minister had proposed that the maximum amount of cash donation that a political party can receive be capped at ₹2,000 and that parties be entitled to receive donations by cheque or digital mode, in addition to electoral bonds.
  • The donations 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 the scheme has been challenged in Supreme Court?
  • It has been stated that the Electoral Bonds Scheme has allowed for unlimited corporate donations to political parties and anonymous financing by Indian as well as foreign companies which can have serious repercussions on the Indian democracy”.
  • The scheme, they have said, has “removed the caps on campaign donations by companies and have legalised anonymous donations”.
  • This poses a “serious danger to the autonomy of the country and will cause adversely effects on  electoral transparency, encourage corrupt practices in politics, and have made the unholy nexus between politics and corporate houses more opaque.
  • Ordinary citizens will not be able to know who is donating how much money to which political party, and the bonds “increase the anonymity of political donations”.
  • The requirement to disclose in the profit and loss account the name of the political party to which a donation has been made, has also been removed.
Does the Election Commission agree?
  • Not entirely. But it has its own concerns about the scheme.
  • In its affidavit to the Supreme Court filed on March 25, the EC said that it had written to the Union Ministry of Law and Justice in April 2017 that “certain provisions of the Finance Act, 2017 and corresponding amendments carried out in the Income-Tax Act, the Representation of the People Act, and the Companies Act will have serious repercussions/ impact on the transparency aspect of political finance/ funding of political parties”.
  • Any donation received by a political party through an electoral bond has been taken out of the ambit of reporting under the Contribution Report”, and if information on the money received through such bonds is not reported, “it cannot be ascertained whether the political party has taken any donation in violation of provisions” of the Representation of the People Act, which “prohibits the political parties from taking donations from government companies and foreign sources”.
  • The Commission also flagged the issue of laws being changed to allow political parties to receive contributions from foreign companies, which would “allow unchecked foreign funding of political parties in India which could lead to Indian policies being influenced by foreign companies”.
What are the government’s arguments on these issues?
  • The government has been defending the scheme on the ground that it limits the use of cash in political funding, thus bringing more transparency, and provides a shield to donors by granting them anonymity.
  • It told the Supreme Court in its affidavit that the introduction of the scheme “has brought in a marked shift from the old electoral system which suffered from many lacunas” as “massive amounts of political donations were being made in cash, by individuals/corporates, using illicit means of funding” and identity of the donors was not known and “the ‘system’ was wholly opaque and ensured complete anonymity”.
  • It argued that “all payments made for the issuance of the electoral bonds are accepted only by means of a demand draft, cheque or through the Electronic Clearing System or direct debit to the buyers’ account”; “no black money can, therefore, be used for the purchase of these bonds”.
  • The government underlined that buyers must comply with KYC requirements, and the beneficiary political party has to “disclose the receipt of this money and must account for the same”. Also, limiting the time for which the bond is valid “ensures that the bonds do not become a parallel currency”.
  • According to the government, “non-disclosure of the identity of the donor is the core objective of the scheme… in order to safeguard the donor from political victimisation”, and “the records of the purchaser are always available in the banking channel and may be retrieved as and when required by enforcement agencies”
What is the top court’s stand?
  • The Supreme Court said that if the identity of the buyers of electoral bonds is not known, the efforts of the government to curtail black money in elections would be “futile”.
  • Furthermore, it not only directed the Finance Ministry to reduce window of purchasing electoral bonds from 10 days to five days in April-May, but also said that it will examine the changes made in the law [the amendments] to ensure the balance does not tilt in favour of any party.

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