New Delhi

In the recently announced Budget, govt continues the clean-up campaign on political funding, through making IT returns mandatory for political parties and issuing electoral bonds

Finance minister Arun Jaitley reiterated the government's commitment to reform political funding, through one of the most unique measures — an electoral bond. This move, coupled with the decision to cap political funding from Rs 20,000 to Rs 2,000, and making filing of Income-Tax (I-T) returns by political parties, suggests that changes on this front may be seen on the horizon.

Political parties have to submit details like name, address, payment mode and PAN of the contributor in form 24A. If a party's contribution doesn't exceed Rs 20,000, it need not submit such details.

How will the electoral bond work?

It will be a bearer bond, which will not have the name of the donor. So, if you want to donate to a registered political party, you have to purchase these bonds from banks authorised by the RBI through digital payment or cheque. You will then have to deposit these bonds to the political party, which will redeem it in the prescribed time limit. Thus, the bank will work as an intermediary for 'electoral bond.'

Will parties have to disclose the donor?

The 'electoral bond' will be backed by the RBI. But finance ministry sources pointed out that political parties would not be bound to declare the amount and the donor of these bonds.

How will the bond be put into place?

The issuance of the bond will require a modification of the RBI Act. The finance minister has said that an amendment to the Reserve Bank of India Act would be made to enable the issuance of electoral bonds in accordance with a scheme that the government of India would frame.

The bond will also require an amendment to the Representation of the People's Act (RoPA), 1951. Section 29 C of RoPA requires political parties to furnish an annual report of all donations of more than Rs 20,000 to the Election Commission of India. This includes companies and individuals. The Association for Democratic Reforms (ADR) said: "Over two-thirds (of total Rs 113 billion) of the funds cannot be traced and are from unknown sources."

Will the donor get tax exemption?

Yes. Donors can claim 100 per cent deduction on the bond's value, along with political parties, under Section 13A of the Income-Tax Act. Political parties have to be recognised by the EC under the election symbol (reservation and allotment) order 1968. This was again amended in 2003 to define political parties as a party registered under RoPA. These rules say that if a political party is registered under RoPA, all incomes — donations, contributions, interest, rent – are exempt from income tax.

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