The nitty-gritty of political funding

Political parties in India get generous funding from big industrial houses and high networth individuals in the form of donation. To bring in more transparency to the funding process, the Finance Minister in the Budget has brought about some changes.

Here we look at the changes, while also exploring the best way to donate to your favourite political party.

As per Election Commission data, there are 1,851 registered political parties in the country. Among them, seven are national parties, 58 are state parties and the rest unrecognised parties. These registered political parties can get donation from individuals and corporates.

Earlier, the donations were allowed to be made by way of cash or other modes like cheque, demand draft (DD). Moreover, there was no restriction on the quantum of amount donated. The only exception being that the political parties should declare and maintain records for donations above ₹20,000 (by cash or other modes).

In the Budget, the Finance Minister, however, proposed to cap the cash donation to ₹2,000. So, any donation above ₹2,000 should be made only by cheque or any other digital mode. While reducing cash-based transactions would usher in transparency and clean up black money in the system, some doubts remain.

What if an individual makes multiple donations of less than ₹2,000 denomination? Also, the Budget has not made any change to the ₹20,000 cap applicable for declaring names of donors by the political parties (ideally, the names of those donating more than ₹2,000 should be disclosed to the Election Commission).

In addition , there are other ways by which an individual can donate a sizeable amount to any political party without revealing his identity. A lowdown on two such ways — donating through trusts or by subscribing to electoral bonds.

Electoral trusts are non-profit organisations. They act as intermediaries by collecting voluntary donations from individuals and corporates and redistributing them to the political parties. These trusts can contribute the donations collected either to a single party of their choice or to different parties.

But it is mandatory for them to give 95 per cent of the donations collected every financial year to the political parties. The updated list of electoral trusts approved by the Central Board of Direct Taxes (CBDT) is available in the website of the Election Commission under http://eci.nic.in/eci_main1/PolPar/

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The parties to which the trusts route the donations received are disclosed to the Election Commission. Data show that the trusts in general prefer distributing their contributions among the parties. For instance, in the financial year 2014-15, the Satya Electoral Trust donated to both the Bharatiya Janata Party and the Indian National Congress. So before donating through this route, you can review to which party the trust contributes the most and then you may choose the trust that allocates more to the party of your choice.

Apart from capping the cash donation to ₹2,000, the second amendment proposed in the Budget is the issuance of electoral bonds.

These are bonds that will be issued by authorised banks. The donors can purchase them only through cheque or digital means. These bonds can be redeemed only by the registered political party within the prescribed time limit. But how the government will attain its objective of increasing the transparency in political funding remains a million-dollar question. Because, the identity of the donor will be unknown since the bonds will not bear the name.

Only the banks issuing these bonds will know the donor’s identity. So, if you want to donate to your favourite political party and keep your identity undisclosed, then electoral bonds are the preferred route.

Also, since the Representation of the People Act (RPA) has not yet been amended, the political party would disclose your identity only if you donate more than ₹20,000. The Section 29C of this Act says that political party should keep record of the donors’ details if donations exceed ₹20,000.

Donations to political parties are eligible for tax exemptions under Section 80GGC of the I-T Act up to a maximum of the total gross taxable income. Howe ver, the Section 80GGC is applicable only for non-cash donations.

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