Electoral Bonds

Electoral bonds were introduced with the Finance Bill of 2017. They are securities or instruments that are used to make financial contributions to political parties. Notification of the Electoral Bonds came out in 2018.

In this article, we will learn about Electoral Bonds in detail, including their scheme, recent update, eligibility, advantages, and disadvantages.

What are Electoral Bonds?

An Electoral Bond (EB) is a bearer instrument that resembles a promissory note and a low-interest financial instrument.

EBs are available in denominations of 1,000 rupees, 10,000 rupees, 100,000 rupees, 1 million rupees, and 10 million rupees They resemble bank notes. These bonds function similarly to bearer bonds or promissory notes in that the political party holding the bonds is paid by the issuer (bank), who also serves as the custodian.

Electoral Bonds Scheme in India

The Reserve Bank of India Act of 1934, the Representation of Peoples Act of 1951, the Income Tax Act of 1961, and the Companies Act were amended to include electoral bonds through the Finance Act of 2017. Anyone can donate money to political parties through the use of electoral bonds. Political parties may redeem these bonds for cash to cover their election-related expenses within 15 days of obtaining them. The secrecy of the donor’s identity is ensured by this process.

Only the State Bank of India has been permitted by the Indian government to offer electoral bonds. Electoral bonds can be purchased by other bank customers using the various payment methods offered. An electoral bond donation needs to be at least Rs 1000.

Supreme Court Declared Electoral Bonds Unconstitutional

The Supreme Court issued its much-awaited decision in the electoral bonds case on February 15, 2024, concluding that anonymous electoral bonds violate the right to information guaranteed by Article 19(1)(a) of the Constitution. The scheme has been declared unconstitutional as a consequence.

Over three days, a bench responsible for interpreting the law that heard several cases challenging the controversial electoral bonds system. The decision was reserved till November 2023. This bench included Chief Justice DY Chandrachud, Justices Sanjiv Khanna, BR Gavai, JB Pardiwala, and Manoj Misra.

Electoral Bonds Under Scrutiny in Supreme Court

The Supreme Court of India is currently examining the Electoral Bonds Scheme in India, as it received criticism for lacking transparency and having the potential to encourage corruption. The Association for Democratic Reforms is one of the petitioners who claim that the scheme weakens democracy by giving preference to the ruling parties and causing imbalances in political funding.

They argue that it violates the fundamental right of citizens to know the source of political money. There is still a legal dispute going on. The main points of disagreement include the scheme’s effect on democracy, the financial differences between political parties, and worries about foreign involvement in politics.

Supreme Court’s Hearing on Electoral Bonds Scheme

Chief Justice DY Chandrachud delivered the lead judgment in the majority verdict made by the court. However, Justice Khanna submitted a concurring opinion using a slightly different logic.

The two main questions addressed by both decisions were :

• Does the electoral bond scheme, Section 29C of the Representation of the People Act, Section 183(3) of the Companies Act, and Section 13A(b) of the Income Tax Act violate the right to information under Article 19(1)(a) of the Constitution?
• Does the amendment to Section 182(1) of the Companies Act, which provides for unlimited corporate funding to political parties, is in conflict with the ideas of free and fair elections?

Eligibility for Electoral Bonds Scheme

The following describes political parties’ eligibility to accept electoral bonds.

• Only Political Parties that received at least 1% of the votes cast in the most recent general election for the Legislative Assembly or the House of People and are registered under Section 29A of the Representation of the People Act, 1951 (43 of 1951).
• A Political Party is not permitted to redeem Election Bonds from more than one Current Account.
• A verified account should have been granted to the political party by the Indian Election Commission.

Process to Use Electoral Bonds

Below is the process to use the electoral bonds :

• The 1,000, 10,000, 1 lakh, 10 lakh, and 1 crore Electoral Bonds can all be issued in multiples of that amount. The maximum amount of electoral bonds is one crore rupees.
• The State Bank of India issues the electoral bonds, which a donor with a KYC-compliant account can eventually buy.
• The bonds may be bought by the donor alone or in partnership with other people. After that, he or she is free to donate these bonds to any group or person they choose.
• Using their confirmed account, the party can now cash the bonds.
• The electoral bonds are only valid for 15 days.

Objectives of Electoral Bonds Scheme

Following are the objectives of electoral bond scheme:

• The Electoral Bonds Scheme’s main goal is to organize and improve India’s political financing system.
• It aims to stop illegal and black money from entering the country’s political financing system.
• According to the government, the program protects the identity of the contributor while also improving political donation transparency.

Advantages of Electoral Bonds Scheme

The following are the advantages of electoral bond scheme:

• Transparency: Electoral bonds can be redeemed by political parties using bank accounts, which enhances accountability and transparency.
• Anonymity: Since the name and other donor details are not printed on the electoral bond, it is anonymous.
• Discourage Cash Transactions: Donor anonymity remains intact and cash transactions are discouraged because electoral funds are paid online, by DD, or by cheque.
• Accountability: Electoral bonds ensure the accounting of the money that political parties raise.
• Boost in Finance: The BJP received over Rs 1,300 crore in funding in 2023 from electoral bonds.

Disadvantages of Electoral Bonds Scheme

The following are the disadvantages of electoral bond scheme:

• Lack of Transparency: The plan’s lack of transparency violates citizens’ access to information and promotes corruption.
• Misconduct: The requirement that all electoral bonds be redeemed by a bank account revealed by the Indian Election Commission encourages misconduct.
• Political Parties Not Filing Returns: There is minimal enforcement against political parties who fail to file returns or file them after the deadline.
• Exemptions and Amendments: Concerns have been expressed about changes made to several laws, such as the Companies Act and the FCRA Act, especially those that exclude businesses from reporting political contributions and let foreign corporations donate to Indian political parties.
• Concerns about Money Laundering: Money laundering issues have been emphasized by the creation of tangible bonds, which are transferable without leaving any evidence behind.

Electoral Bonds UPSC

Aspirants should prepare this topic for General Studies Paper II, as these UPSC Notes on electoral bonds in India and related issues are per the UPSC Syllabus. The topic is relevant to the UPSC Mains because these topics frequently appear in the newspapers.

UPSC Previous Year Question on Electoral Bonds

UPSC GS-II 2017

Q. To enhance the quality of democracy in India, the Election Commission of India has proposed electoral reforms in 2016. What are the suggested reforms and how far are they significant to make democracy successful?

FAQs on Electoral Bonds

What are Electoral Bonds?

Electoral bonds are financial instruments introduced in India for making donations to political parties. They aim to promote transparency and accountability in political funding.

What is Electoral Bond Verdict?

On February 15, a five-judge Supreme Court bench delivered a decision regarding the constitutionality of the electoral bonds program, declaring it “unconstitutional” in two judgments that indicated a unanimous decision.

How do Electoral Bonds work?

Individuals and corporations can purchase electoral bonds from specified banks and donate them to registered political parties. The parties can encash these bonds in their designated bank accounts.

Are Electoral Bonds Anonymous?

Yes, electoral bonds maintain donor anonymity. The donor’s identity is known only to the bank issuing the bonds, ensuring confidentiality.

Can anyone buy electoral bonds?

Electoral bonds can be purchased by Indian citizens or entities incorporated in India. Foreign entities are not eligible to buy electoral bonds.

Are electoral bonds taxable?

No, electoral bonds do not attract any tax implications, neither for the donor nor the recipient political party.

What denominations are available for electoral bonds?

Electoral bonds are available in various denominations ranging from ₹1,000 to ₹1 crore, facilitating donations of different amounts.

Can electoral bonds be encashed by anyone?

No, only registered political parties can encash electoral bonds in their designated bank accounts within a specified period.

Are electoral bonds a form of cash donation?

No, electoral bonds are not cash donations. They are financial instruments that can be used exclusively for donations to political parties.

What is the validity period of electoral bonds?

Electoral bonds remain valid for a specified period from the date of issuance, typically for 15 days.