The Union government on Tuesday notified a framework for electoral bonds — a financial instrument for making anonymous donations to political parties — to cleanse political funding.However, new political parties will be ineligible to receive funds through this route.

“A citizen of India or a body incorporated in India” can purchase electoral bonds from specified branches of State Bank of India (SBI) in multiples of Rs 1,000, Rs 10,000, Rs 100,000, Rs 1 million, and Rs 10 million by making payment from their bank accounts, Finance Minister Arun Jaitley said in the Lok Sabha.

“The element of transparency is that the balance sheet of donors will reflect that they have bought a certain amount of bonds, and political parties will also file their returns (to the Election Commission) that will reflect the extent of electoral bonds received,” Jaitley said.

These bonds will be an interest-free debt instrument, resembling promissory notes, where SBI will be the custodian of the donor’s funds until political parties redeem them.

“The purchaser will be allowed to buy electoral bond(s) only on due fulfilment of all the extant KYC [know your customer] norms and by making payment from a bank account. It will not carry the name of payee,” Jaitley said.

Political parties, which have secured at least 1 per cent votes in the last general election to the Lok Sabha or the state Assembly and are registered under the Representation of the People Act, 1951, will be eligible to receive donations through electoral bonds. They can encash the bonds within 15 days of issuance in their bank accounts disclosed to the Election Commission. Electoral bonds will be available for purchase for a period of 10 days in January, April, July, and October, and for 30 additional days during the year in which the Lok Sabha elections take place.

The finance minister said a large portion of the source of political funding was undisclosed at present, as most donations were made in cash. “The name of the donor, quantum and source of money are not known (for present donations). Electoral bonds substantially seek to cleanse the system,” he said.

When Jaitley first announced the proposal of electoral bonds in the 2017-18 Budget, the provisions in the accompanying Finance Bill had caused concerns among political observers, that the bonds could institutionalise greater opacity and lead to further lack of openness in political funding. Those concerns seem to have been assuaged, as parties will now be required to declare to the EC about the funding coming through these instruments.

“This provision is a new one and will be the most interesting to watch. We will have to wait for the official notification on the issue to assess how detailed the declarations of political parties regarding electoral bonds will be,” said Major General (Retd) Anil Verma, who heads the non-profit Association of Democratic Reforms (ADR).

Last year, the government had reduced the maximum cash donations to political parties to Rs 2,000, from the earlier limit of Rs 20,000.

According to an ADR analysis, national and regional parties received Rs 78.33 billion funding between 2004-05 and 2014-15, 69 per cent of their total income, from unknown sources. The analysis showed that 83 per cent income of the Indian National Congress and 65 per cent income of the Bharatiya Janata Party (BJP) came from unknown sources during this period.