Electoral bonds: what, why and concerns



  • G.S. Paper 2
  • About electoral bonds
  • The importance of these bonds and earlier provisions regarding it
  • Recent amendments


  • The Government issued a notification in January, 2018 on electoral bonds, which was provided in the Finance Act 2017.
  • Despite being argued as an effective tool for cleaning political funding, there are some serious concerns with electoral bonds.
  • Electoral Bonds have been proposed as a way of reforming election funding in the Union Budget 2017.

What is an Electoral Bond?

  • Electoral bonds will be issued by a notified bank for specified denominations.
  • Those who want to donate to a political party, can buy these bonds by making payments digitally or through cheque.
  • Then they are free to gift the bond to any registered political party.
  • The bonds will likely be bearer bonds and the identity of the donor will not be known to the receiver.
  • The party can convert these bonds back into money via their bank accounts.
  • The bank account used must be the one notified to the Election Commission and the bonds may have to be redeemed within a prescribed time period.
  • Electoral bonds are essentially like bearer cheques.
  • The issuing bank will remain the custodian of the donor’s funds until the political party redeems the bond.

Why is it important?

  • Most political parties use the negligent regime on donations to accept cash donations from anonymous sources.
  • Nearly 70% of the Rs.11,300 crore in party funding over the past 11-year period came from unknown sources.
  • Currently, political parties are required to report any donation of over Rs.20,000 to the IT department.
  • But there has been a trend of more donations flowing by way of hard cash in smaller amounts.
  • To fix this, the Budget has proposed to reduce the disclosure limit to Rs.2,000 and insists that any amount over this must be paid through cheque or the digital mode.
  • The idea is that electoral bonds will prompt donors to take the banking route to donate, with their identity captured by the issuing authority.

What are the problems in electoral bond?

  • The identity of the donor is captured, but it is not revealed to the party or public.
  • So the transparency is not enhanced for the voter.
  • Also the income tax breaks may not be available for donations through electoral bonds.
  • This pushes the donor to choose between remaining anonymous and saving on taxes.
  • Also privacy of the donor is compromised as the bank will know their identity.

What were the earlier provisions?

  • The incongruity of political parties depending on corporate funds to fight elections and sustain democracy is at times troubling.
  • To address this, the Representation of People Act 1951 was amended in 2003, and sections 29B and 29C were inserted.
  • Section 29B says political parties may accept contributions of any amount from any person or company.
  • This is however except any contributions from a government company or foreign source.
  • Section 29C says that every political party which receives such funding should prepare a report on contributions above Rs.20,000.
  • They should also submit the same to the Election Commission before the income tax returns are filed.
  • If any party fails to do this, it will not get tax exemption for that year under the Income Tax Act.
  • Similarly, Section 13A of the Income Tax Act 1961 provides for exemption of all voluntary contributions received by a political party from payment of income tax.

But such exemption is conditional on –

  • the recipient party maintaining such books of accounts and other documents
  • maintaining a record of such contributions and the names and addresses of donors as well as amounts above Rs.20,000
  • This provision also says that if the party fails to submit the report as stipulated in Section 29C, it will not get the tax exemption.
  • Section 139 (4B) of the IT Act deals with the furnishing of income returns by parties.
  • It requires a political party to furnish total income including the exempted contributions with all the particulars.

What are the recent amendments?

  • The Finance Act, 2017 amended both the above-mentioned Acts.
  • It also exempted electoral bonds from the purview of section 29 C of the RP Act 1951 as well as section 13 A of the IT Act 1961.
  • Henceforth, income received by way of electoral bonds is not required to be disclosed in the report to the Election Commission.
  • Further, political parties are not required to maintain any record of the same or the names and addresses of donors of these bonds.

What are the concerns?


  • The electoral bonds scheme has been to keep the identity of the donor absolutely confidential.
  • The authorised bank will not disclose any information about the purchaser of the bonds to any authority for any purpose.
  • Also, the bank will not know who the recipient of the bonds is.
  • This secrecy and confidentiality in the case of political funding is a serious concern.

Black Money

  • A legal provision introduced by the Centre last year mandated contribution above Rs.2,000 to be made only through cheques, drafts, etc.
  • This provision should adequately take care of the problem of black money flowing into the coffers of political parties.
  • But by introducing electoral bonds, the Government has defeated this purpose.


  • The scheme conceals from public scrutiny the identity of the corporates and donors who contribute to political parties.
  • The Election Commission will neither be allowed to have a record of the electoral bonds received by a political party.
  • It is also not clear whether the I-T authorities will have an opportunity to get all the details of the contribution.

Legal incongruity

  • Section 13A, as amended, rules out the need to maintaining record of the electoral bonds or details of the donor.
  • This provision seems to be in contradiction with Section 139 (4B) of the IT Act which deals with furnishing information.

Taxation system

  • Taxing is a sovereign function. It is the social policy to tax all incomes for the benefit of society.
  • So, all tax statutes lay down specific conditions for exempting any particular category of income.
  • But the amendments, excluding all the existing conditions, in favour of the bonds goes against the scheme of taxation laws.
  • Any legislative exclusion of public scrutiny of financial transactions having a bearing on public revenue is against constitutional policy.


  • The notification prohibits disclosure of any information about a donor to any authority which is a substantive provision.
  • Notably, a notification issued under an Act cannot make a substantive provision. Only an Act can make such a provision.
  • Also, this notification has been issued under section 31 of the RBI Act 1934 which does not contain any such provision.
  • Legally, a notification which is a subordinate legislation cannot travel far outside the parent Act.
  • In all, the electoral bonds have some legal incongruities and basic differences with constitutional and democratic principles.

Electoral bonds: what, why and concerns Electoral bonds: what, why and concerns Electoral bonds: what, why and concerns Electoral bonds: what, why and concerns Electoral bonds: what, why and concerns


Write answer on brainyias.com

Write in real time conditions

Get your answer evaluated by experts.

Artificial intelligence embedded software.

Evaluation of 6 parameters.


News by date

Browse by month

IAS buzz monthly pdf