New Delhi

With over 75 percent of the political donations coming from the unknown sources, Union Minister for Finance Arun Jaitley finally accepted the recommendations of the Election Commission to propose concrete reforms in electoral funding by mandating the Reserve Bank of India to institutionalise fund collections by the political parties. Though Jaitley did not entirely accept the recommendations of the EC, he sought to address much of the concerns by capping donations from anonymous sources to Rs 2000 from an individual.

The Finance Minister proposed in his Budget for 2017-18 that the RBI Act would be suitably amended to allow the principal banker to issue bonds, which could be bought by an individual seeking to make political donation. The bond could be redeemed in the bank accounts of the political parties subject to the condition that they file their income tax returns within the stipulated time. Political parties would continue to accept donations from individuals through cheques and electronic transfer.After presenting the Budget, Jaitley recalled that the former US President Barack Obama used to take $50 from one and $100 from another during his election campaign to justify the Budget proposals.

However, Jaitley apparently ignored another major recommendation of the EC, that the political parties who do not contest elections should not enjoy the income tax exemptions. The EC had argued in its report to the government, that there are over 1900 registered political parties out of which only 400 have contested elections during 2005-15. The EC has been of the view that such political outfits are essentially conduits for routing of the black money. The EC had also ask the Central Board of Direct Taxes (CBDT) to strike off from its list of recognised political outfits enjoying tax exemption. The EC had also argued that the tax exemptions be conferred only to those political outfits which win at least one seat in any elections.

Incidentally, section 13A of the Income-tax Act, 1961 confers tax-exemption to political parties for income from house property, voluntary contributions, capital gains and other sources.The Association of Democratic Reforms (ADR) in its recent report had noted that only 25 percent of the annual income of BJP and Congress comes from known sources.

The BJP chief Amit Shah, while hailing the electoral funding reform measures in the Budget, said that the step would help clean up the political system in the country. “Political parties cannot take donation of more than Rs 2000 from an individual. They, however, can accept donations from individuals through cheques, electronic transfer, and electoral bonds to be issued by the RBI,” said Jaitley.

The Finance Minister got a rare word of praise from the Congress vice-president Rahul Gandhi, who said that any step to clean up the political system is welcome.

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