Most people want to know more about electoral bonds and their purpose. A firm formed in India or any Indian resident may purchase an electoral bond from specific State Bank of India branches. An electoral bond is similar to a promissory note. Then, the individual or business can donate the money to any eligible political party of their choice. The bonds resemble banknotes in that they are interest-free and receivable to the bearer upon demand. These bonds will be available for digital or check purchases by an individual or group. Here, we will explore about electoral bonds and their purpose.
The electoral bond was introduced in the Union Budget 2017–18, and its provisions will apply to the AY 2018–19 beginning on April 1, 2018. Additionally, in accordance with Sections 133 to 136 of the 2017 Finance Bill, the Reserve Bank of India Act, 1934 (Section 31(3)), and the Representation of People Act, 1951, is amended as necessary. Here, we will discuss about electoral bonds and their purpose.
What is Electoral Bond?
Electoral bond functions similarly to a financial instrument used to donate money to political parties. These bonds may also be issued by the general public to support approved political parties. In 2018, the government announced the Electoral Bond Scheme. In an effort to increase openness in political fundraising, electoral bonds have been proposed as a substitute for financial contributions to political parties. Citizens of India or businesses incorporated or founded there may purchase electoral bonds.
By purchasing Electoral Bonds, you can benefit from tax exemption. Under section 80GGC/80GGB of the Income Tax, contributions to political parties are free from income tax.
A political party that wishes to participate in elections must register in accordance with Section 29A of the Representation of the People Act, 1951. The bonds function similarly to banknotes that are interest- and demand-free payments to the bearer.
Features of Electoral Bonds
By contributing money to the political parties of their choice that are listed as eligible for the campaign, any Indian business body, registered agency, or undivided Hindu family may issue electoral bonds.
Corporate bonds are issued by RBI-notified banks like the State Bank of India (SBI) and come in the following denominations: $1,000, $10,000, $1,000,000, and $1,000,000. Electoral bonds are valid for 15 days following issuance, regardless of denomination.
The electoral bonds issued by the general public or corporations are given to the political parties. In order to submit returns on the total amount of electoral bonds they have received, the political parties anticipate approaching the electoral commission.
In the months of January, April, and then later in the year in July and October, a person is permitted to issue bonds for a duration of ten days. There will be a 30-day window to issue electoral bonds if it’s an election year.
The issuance of electoral bonds has a number of tax advantages. Donors of electoral bonds receive an additional tax benefit in exchange.
Election bond donations are regarded as tax-exempt under Sections 80 GG and 80 GGB of the Income Tax Act.
However, in accordance with Section 13A of the Income Tax Act, the political party receiving the money may likewise make a donation.
Use of Electoral Bonds
Electoral bonds and their purpose is simple. Bonds in multiples of Rs. 1,000, Rs. 10,000, Rs. 100,000, and Rs. 1 crore will be issued. The range, though, is from Rs. 1,000 to Rs.
Electoral bonds are offered at a few SBI branches. The bonds can be bought by a donor with a KYC-compliant account, who can then donate to the political party or person of their choice or both.
The electoral bond receiver has access to cash out the bonds using the party’s verified account. Electoral bonds, however, only have a fifteen-day shelf life.
Purchase of Electoral Bonds
Every quarter’s beginning offers 10 days for the purchase of electoral bonds. You can purchase the electoral bonds on the first 10 days of January, April, July, and October. In the year of the Lok Sabha elections, a further 30 days is necessary for the government.
Eligibility to Receive Electoral Bonds
Only political parties that got registration in accordance with Section 29A of the Representation of the People Act, 1951 (43 of 1951), and that received at least 1% of the votes cast in the most recent general election for the House of Representatives or the State’s Legislative Assembly are eligible to receive electoral bonds.
Tranches of electoral bonds typically go on sale between days one and ten of the allotted month. For example, the 21st tranche of bond sales was from July 1–10, 2022, while the 22nd tranche was from October 1–10, 2022. The government sold the first batch of electoral bonds from March 1–10, 2018.
Electoral Bonds Validity
When used to make donations to political parties registered under Section 29A of the Representation of the Peoples Act of 1951, electoral bonds have a 15-day validity period (43 of 1951). Additionally, the party receiving a donation needs to win the House of the People, generally known as a Legislative Assembly, with more than 1% of the votes cast in the most recent general election.
Issuing of Electoral Bonds
The only bank permitted to issue electoral bonds is SBI. The SBI branches in Lucknow, Shimla, Dehradun, Kolkata, Guwahati, Chennai, Patna, New Delhi, Chandigarh, Srinagar, Gandhinagar, Bhopal, Raipur, and Mumbai have been the authorization. When issued, a political bond is valid for 15 days. If you deposit the bond after the validity time has passed, any political party will receive no payment, according to the statement.
The only bank permitted to sell and redeem the bonds is the State Bank of India. Customers of other banks can purchase the bonds through the various payment methods that are available to them. A political party, however, can only redeem the bond from one of the bank’s 29 authorized branches.
KYC Norms for Electoral Bonds
The buyer of electoral bonds permits purchases subject to proper compliance with all current KYC requirements and by ensuring payment from a bank account. The electoral bond will not, however, contain the payee’s name. As a result, neither the general public nor the opposition parties may be aware of who bought the bonds. However, for the purchase of electoral bonds, anyone needs KYC validation so the Government and the relevant authorities will be aware of who made the purchases.
Conditions of Electoral Bonds
1. Any party that has obtained at least 1% of the votes cast in the most recent general election or assembly election and got registration under section 29A of the Representation of the Peoples Act, 1951 (43 of 1951), is eligible to acquire electoral bonds.
All transactions involving an electoral bond will take place through the verified account that the Election Commission of India (ECI) will assign to the party.
2. The donor’s name won’t appear on the electoral bonds. Therefore, it’s possible that the political party is unaware of the donor’s identity.
Advantages of Electoral Bonds
1. The misconduct is made worse by the need that all electoral bonds be redeemed through a bank account that the Election Commission of India has made public.
2. The widespread usage of electoral bonds may serve to restrain political parties whose only objective is to raise money from the general people. The reason for this is that only registered parties with at least 1% of the vote in the general election are eligible to receive money for elections.
3. Electoral bonds help the government achieve its goal of completely digitalizing and protecting election funding. As a result, donations over Rs. 2000, it doesn’t require in the form of electoral bonds and checks.
4. You can use cheques or electronic transactions for all electoral bond transactions.
Disadvantages of Electoral Bonds
1. According to some detractors, the main motivation behind the implementation of electoral bonds was to stifle funding for opposition parties.
2. Financially sound enterprises don’t need to worry about electoral bonds. These businesses want to favor one political party over another by funding it.
The elimination of the restriction on giving 7.5% of the company’s annualized income to a political party further supports this.
Purpose of Electoral Bonds
Lets’ discuss the electoral bonds and their purpose. A financial technique for facilitating contributions to political parties is the electoral bond. Upon approval from the Central Government, the Scheduled Commercial Banks issue electoral bonds to prospective political party donors in exchange for payments through check, demand deposit, or electronic funds transfer (you cannot purchase it by paying cash). These bonds must be exchangeable in the authorized account of a political party that is registered within the permitted time frame following the bond’s issuance.
The Government is making a number of adjustments to address the issue of donor uncertainty and enhance political party finance. According to the rules, political parties need to retain documentation of any voluntary contributions they receive that total more than Rs. 20,000 as well as the name and address of the donor. The government has adopted electoral bonds to increase financial transparency while respecting donor privacy.
Controversy over the Electoral Bonds
Here we will discuss the electoral bonds and their purpose. According to experts, if the electoral bonds program is implemented to promote greater transparency, the government should not have stopped enabling information about these donations to be made public.
The shareholders of a firm won’t be aware of the company’s contribution, according to experts and a number of lawmakers, because neither the buyer of the bond nor the political party receiving the payment will disclose the donor’s identity. Voters will also be unaware of a political party’s funding sources and channels.
The electoral bond concept is opposed on the grounds that the anonymity of the donor may encourage the inflow of illicit funds. Others claim that this is the plan to enable major corporations to make donations without revealing their identities. Civil rights organizations claim that the idea of donor “anonymity” imperils the fundamental nature of democracy.
According to the Congress party, contributions made through electoral bonds amounted to money laundering.
Restrictions that were eliminated once the electoral bond program was implemented:
1. Prior to this, the Companies Act prohibited donations from foreign corporations to political parties.
2. Section 182 of the Companies Act states that a company may donate no more than 7.5% of its three-year net profit average to politics.
3. In accordance with the same Act section, businesses need to include information about their political donations in their annual statement of accounts.
In order to ensure that this proviso would not be applied to businesses in the case of electoral bonds, the administration moved an amendment in the Finance Bill.
Thus, political parties can now accept donations from Indian, foreign, and even shell businesses without needing to notify anyone.
Supreme Court View on Electoral Bonds
The Supreme Court requested that all political parties provide the ECI with information regarding donations made through electoral bonds on April 12, 2019. Additionally, it requested that the Finance Ministry cut the 10-day window for buying electoral bonds to five days. For the hearing of additional arguments against the electoral bonds, the top court has not yet set a date.
Election Commission of India on Electoral Bonds
On April 10, 2019, the Election Commission informed the Supreme Court of India that it disapproved of anonymous contributions made to political parties.
“We don’t have a problem with electoral bonds, but we want complete transparency. We oppose anonymity,” Senior Advocate Rakesh Dwivedi said in a statement to the Supreme Court on behalf of the election panel. During a hearing, the supreme court has given the poll panel’s remarks on a number of petitions contesting the legitimacy of electoral bonds.
Reserve Bank of India on Electoral Bonds
The RBI criticized the program, according to a November 18, 2019, HuffPost India story. The bonds would “undermine the faith in Indian currencies and facilitate money laundering,” the central bank had warned the government.
Transforming electoral bonds aims to make them more transparent in terms of where political donations come from. The greatest solution to safeguard a donor’s rights when making digital donations using electronically issued bonds is provided by this system. An effort to increase transparency in Indian political fundraising is the Electoral Bond. The electoral bond system, which helps donors in hardship, is still unknown to the general public and opposing political parties. This reform is to promote greater accountability and openness in political fundraising while also averting the potential creation of black money.
I hope this detailed information on the purpose of electoral bonds and its controversy in India would help you much.
Frequently Asked Questions
1. How do I define an electoral bond?
An electoral bond is a bearer document, much like a promissory note. It will resemble a banknote that is interest-free and payable to the bearer immediately. Any Indian citizen or organization with local incorporation may buy it.
2. How we can use the electoral bond?
You can access the bonds at specific State Bank of India branches in multiples of 1,000, 10,000, 1 lakh, 10 lahks, and 1 crore. The donor can purchase them using a KYC-compliant account. Donors can give the bonds to the party of their choice, and the party’s verified account will allow them to cash them in within 15 days.
3. How long are electoral bonds valid?
The Electoral Bonds are valid for fifteen calendar days starting on the day of issuance. And you will deposit the Electoral Bond after the validity period has passed, any payee Political Party will not receive any payment.
4. Who is the issuer of electoral bonds?
The only bank permitted to issue electoral bonds is SBI. The SBI branches in Lucknow, Shimla, Dehradun, Kolkata, Guwahati, Chennai, Patna, New Delhi, Chandigarh, Srinagar, Gandhinagar, Bhopal, Raipur, and Mumbai have the authorization. When issued, a political bond is valid for 15 days.
5. What is the electoral bond issue?
A bearer instrument similar to a promissory note and an interest-free banking instrument would be an electoral bond. A person or organization incorporated in India or who is a citizen of India may purchase the bond.
6. When can you buy electoral bonds?
At the start of every quarter, the electoral bonds are on sale for ten days. The government has designated certain dates for the purchase of electoral bonds: the first 10 days of January, April, July, and October.
7. How We can Use the Electoral Bonds?
The process of using electoral bonds is simple. The Bonds were issued in multiples of Rs. 1,000, Rs. 10,000, Rs. 100,000, and Rs. 1 crore. The range, though, is from Rs. 1,000 to Rs.
Only a few SBI branches offer Electoral bonds. A donor can buy the bonds with a KYC-compliant account, and can then donate to the political party or person of their choice or both.
8. Who can issue electoral bonds?
By contributing money to the political parties of their choice, any Indian business body, registered agency, or undivided Hindu family may issue electoral bonds.
9. Are taxable electoral bonds?
Arun Jaitley, who was the finance minister at the time, declared in February 2017 that the contributions would be tax deductible. So long as a political party submits returns, a contributor will receive a deduction, and the beneficiary or political party will receive a tax exemption.
10. Which Indian bank can issue electoral bonds?
The 29 authorized branches of the State Bank of India are issuing and redeeming Electoral Bonds.
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