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Electoral Bonds and Electoral Trusts

  • Category
    Polity & Governance
  • Published
    9th Nov, 2023

Context:

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.
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