Electoral Bonds and Electoral Trusts

Before the controversial Electoral Bonds (EB) Scheme was introduced in 2018, there was something called an Electoral Trusts (ET) Scheme, which was introduced in 2013.

What are electoral trusts?

• Under the scheme notified by the any company registered under Section 25 of the Companies Act, 1956, can form an electoral trust.
• Under Section 17CA of the Income-tax Act, 1961, any citizen of India, a company registered in India, or a firm or Hindu Undivided Family or association of persons living in India, can donate to an electoral trust.
• Trusts have to apply for renewal every three financial years. They must donate 95% of contributions received in a financial year to political parties registered under the Representation of the People Act, 1951.
• The contributors’ PAN (in case of a resident) or passport number (in case of an NRI) is required at the time of making contributions.

What Are Electoral Bonds?

• The government implemented the electoral bonds in 2018 to cleanse the system of political funding. Brought to reduce the influence of black money in politics and to provide a legal and transparent mechanism for individuals and corporations to contribute to political parties.
• These are bearer instrument. In case of bearer instruments, generally, no ownership information is recorded and the holder of the document is assumed to be the owner.
• These are interest-free banking instruments and a citizen of India or a body incorporated in the country is eligible to purchase them.
• Available in multiple denominations, ranging from Rs 1,000 rupees to Rs 1 crore in specified branches of the State Bank of India (SBI).
• These can only be bought by making payment from a bank account. The bond, would not carry the name of the payee and have a life of only 15 days, during which it can be used for making donations to political parties meeting certain criteria.
• The electoral bonds, handed over to political parties, can be encashed only through designated bank accounts by the parties. Electoral bonds shall be available for purchase for a period of 10 days each in January, April, July and October, as may be specified by the central governmen. An additional 30-day period shall be specified by the Centre in a general election year.

Concerns regarding electoral bonds

• The lack of transparency regarding the source of funds.
• The donor’s identity is not disclosed to the public or the Election Commission, which makes it difficult to track the origin of political contributions.
• This led to concerns that electoral bonds could be used to launder illicit money into the political system.
• A five-judge Constitution bench of the Supreme Court is hearing petitions challenging the validity of electoral bonds used to fund political parties.