Context

• Electoral bonds are being pitched as an alternative to cash donations made to political parties as part of efforts to bring transparency in political funding.
• The State Bank of India (SBI), in the VII Phase of sale of Electoral Bonds, has been authorised to issue and encash Electoral Bonds through its 29 authorised branches w.e.f. January 01 - 10, 2019.
• Electoral bonds aggregating to ?1,056.73 crore were purchased by citizens or entities till the completion of sixth phase of issuance of electoral bonds in November 2018.

About

What is it?

• An electoral bond is designed to be a bearer instrument like a Promissory Note — in effect, it will be similar to a bank note that is payable to the bearer on demand and free of interest. It can be purchased by any citizen of India or a body incorporated in India.
• In India, the government notified the Electoral Bond Scheme in January 2018.

How do you use it?

• The bonds have been issued in multiples of ?1,000, ?10,000, ?1 lakh, ?10 lakh and ?1 crore and have been available at specified branches of State Bank of India. They can be bought by the donor with a KYC-compliant account. Donors can donate the bonds to their party of choice which can then be cashed in via the party's verified account within 15 days.

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 has been 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?

• Donations will be tax deductible, and the benefitting political party will get a tax exemption for the amount received.

Are the private companies eligible for electoral bonds?  And what are the limits of their donations?

• Yes, prior to 2017, Section 182 of the Companies Act, 2013, stipulated that a company can donate only up to 7.5% of its average profit of the last three years, and must disclose this amount and the beneficiary political party.
• Now, through the electoral bonds, there is no limit to the amount companies can donate, and the requirement for such firms to have existed for the last three years on a profit-making basis has also been deleted. The implication is that even loss-making companies or shell companies can be used to purchase electoral bonds. Essentially, then, corporate entities – and individuals – can now funnel unlimited amounts to a political party through electoral bonds, anonymously.
• Section 13A of the IT Act, companies contributing through electoral bonds will not even be required to keep records of such donations, and if no records are mandatorily maintainable, no questions can presumably be asked by IT authorities.
• Even more, the RPA Act has been amended to exempt parties to inform EC of any amount received above ? 2,000, if made through electoral bonds. The result is complete financial opacity; EC cannot name the donors, and the IT department, even if questioned under the RTI Act, can claim confidentiality granted to assesses.

Are foreign companies registered in India eligible for contributing political parties through bonds?

• The amended Companies Act now allows any foreign company registered in India to make contributions through bonds to political parties, subject to legitimate doubts about who or where its real owners are, or what its source of funding is.