Electoral Bonds: Meaning, Price, and Eligibility

The Indian government introduced the concept of electoral bond schemes to make the political funding system transparent in India. These Bonds are bearer banking bonds used to fund the eligible political parties in India. The idea is to reduce the influence of black money.
In this blog, we will learn about electoral bonds, their meaning, how to invest, and much more. 

What are Electoral Bonds?

Introduced in the Finance Bill 2017 and implemented in 2018, the Electoral Bond Scheme issues bonds to donate funds to political parties. Electoral Bonds are interest-free bearer bonds or money instruments available at the authorised branches of the State Bank of India (SBI). These bonds are similar to promissory notes, where the issuer (bank) is the custodian and pays the bondholder (political party).

The electoral bonds are sold in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, and Rs 1 crore. An investor can buy these bonds from a KYC-compliant account to make donations to the political party. Since these are bearer instruments, the name and details of the donor are not mentioned and the document-holder is considered to be the owner of the bond. 

The electoral bonds can be issued by the general public to fund the political parties. The parties then have to encash them within a stipulated time through the designated bank accounts. 

Why was the Electoral Bond Introduced?

The electoral bonds were introduced in India with the aim to bring transparency in the political funding system. With the introduction of these bonds in the system, all the funding is now received through a formal banking channel under the purview of the government, reducing the influence of black money. Additionally, the identity of the donors remains confidential, decreasing the risk of retaliation or intimidation for their political affiliations.

How Do the Electoral Bonds Work?

The electoral bonds are available for purchase for 10 days each in the months of January, April, July, and October, as specified by the central government. In a general election year, the Center has the authority to extend the time by an extra 30 days. Electoral bonds are available in multiples of Rs.1,000, Rs.10,000, Rs.1 lakh, Rs.10 lakhs, and Rs.1 crore and can be issued or bought for any denomination.

Individuals and corporations can buy electoral bonds and make payments through their bank accounts. The name of the payee is not mentioned in the bond and has a life of 15 days only. Within these 15 days, the buyer can use the bond to make a donation to any political party.

The receiver, i.e., the political party, then submits the electoral bond to the designated bank to encash it. They need to approach the election commission and file returns on the total electoral bonds received by them. 

The process of working on the electoral bonds is as follows:

• Notified banks issue electoral bonds.
• Donors can buy these bonds from notified banks using a cheque or digital payment, ensuring donor identity protection.
• Donors must donate these bonds to their chosen political party within 15 days.
• Political parties then redeem these bonds into their Election Commission of India (ECI) registered account.
• ECI assigns a verified account to the party for all electoral bond transactions.
• Eligibility for receiving electoral bonds is limited to political parties registered under Section 29A of the Representation of the People Act, 1951, securing at least 1% of the votes in the previous general election to the Legislative Assembly or House of the People.

Eligibility Criteria for Electoral Bonds? 

Citizens of India, entities, and corporations can purchase electoral bonds in India from the authorised branches of the State Bank of India (SBI). You can buy these bonds individually and jointly only through KYC-compliant accounts to donate to a political party.

The eligibility criteria for purchasing the electoral bond are as follows:

• A Hindu Undivided Family (HUF) 
• A company 
• A firm 
• An Association of Persons (AOP) or a Body of Individuals (BOI), whether incorporated or not
• Every other artificial juridical person 
• Any office, agency or branch owned or controlled by an artificial judicial person

Who Can Receive Funding via Electoral Bonds?

To receive funding through electoral bonds, the eligible political parties need to satisfy the following criteria:

• Political parties registered under the RPA and securing a minimum of 1% of the votes in recent Lok Sabha or State Assembly elections can get a verified account from the Election Commission of India (ECI).
• Bond amounts purchased must be deposited into this account within 15 days.
• The political party is obligated to encash the amount within this timeframe, with the received donation going to the Prime Minister’s Relief Fund.
• Please note these bonds are subject to certain limitations.

Documents Required For Buying in Electoral Bonds

Following is a list of documents required to buy electoral bonds:

• Application form and pay-in-slip,
• Copy of citizenship proof,
• KYC documents, and
• In the case of payment from another bank account to SBI, a proforma from the remitting branch, as provided on the SBI website, declaring the source of funds on the letterhead of the branch, signed and stamped by the branch manager.

The documents for citizenship proof include a passport or voter ID card. For the states of Assam, J&K and Meghalaya, you need to submit a letter from the national population register. For non-individuals, you need to submit either a Certificate of incorporation, Partnership deed, trust deed, or any other document showing incorporation or establishment in India.

KYC documents include Aadhar cards, PAN cards, and Voter ID cards. In the case of a company, you can submit a Certificate of incorporation or registration certificate.

Taxation on Electoral Bonds

Electoral bond donations made by individuals or entities are exempted from tax under Section 80GG and Section 80GGB of the Income Tax Act 1961. Political parties can receive donations according to the provisions of Section 13A of the Income Tax Act.

Benefits of Electoral Bonds

The benefits of electoral bonds are as follows:

• Electoral bond aims to make political funding digitised and safe.
• Since these bonds are redeemed in a bank account under the purview of the government, it reduces malpractice and the chances of tax evasion.
• Electoral bonds promote transparency and accountability as they can be redeemed only through designated banks.
• Electoral bonds act as a deterrent for political parties focused solely on fundraising, as only registered parties securing a minimum of 1% of the votes in general elections qualify for electoral funding.

Challenges to the Electoral Bonds Scheme in the Supreme Court

Following are the challenges/disadvantages of the electoral bond scheme raised in the Supreme Court:

1. Non-transparent instrument that is not entirely anonymous

Electoral Bonds, despite their opaqueness, lack complete anonymity. The contention is that only the government can access information about contributors and recipients. Since the State Bank of India (SBI) is government-affiliated, donations to opposition parties could face scrutiny from investigative agencies, creating a form of selective anonymity.

2. Violates Right to Information

The Electoral Bond scheme violates the citizens’ fundamental right to information about political parties under Article 19 (1) (a). It is argued that if the citizens have the right to know about candidates, they certainly have the right to know about who is funding the political party.

3. Differentiates between corporations and citizens:

The scheme gives corporate donors anonymity, but citizens donating Rs 2000 in cash will disclose their names. This can lead to the overshadowing of citizens’ voices by corporations in a democracy.

4. Unfair to the shareholder investing in Companies:

By donating to Electoral Bonds, the company is not informing the shareholders how their money will be spent.

Final Words

Electoral Bonds are not investment instruments but are a way to donate to the political parties for their smooth working or to help them commence elections. However, these bonds can help you reduce your tax liability but are interest-free banking tools. They can only be purchased through the designated branches of the State Bank of India. It is advised to connect to your investment advisor before buying any investment instrument.

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