Want to Donate to a Political Party with Income Tax Benefits: Here are the ways!!

Cash Donations: Upto INR 2000 (As Amended by FA, 2017)

By Cheques/Electronic Transfers: Any Amount

By Cheques/Electronic Transfers to Electoral Trusts: Any Amount

By Electoral Bonds: Any Amount (Added by FA, 2017)

The conventional system of political funding is to rely on donations.  These donations, big or small, come from a range of sources from political workers, sympathisers, small business people and even large industrialists.  The conventional practice of funding the political system was to take donations in cash and undertake these expenditures in cash.  The sources are anonymous or pseudonymous.  The quantum of money was never disclosed.  The present system ensures unclean money coming from unidentifiable sources.  It is a wholly non-transparent system.  Most political groups seem fairly satisfied with the present arrangement and would not mind this status-quo to continue.  The effort, therefore, is to run down any alternative system which is devised to cleanse up the political funding mechanism.

Now understand how these electoral bond scheme as introduced by finance Act 2017 envisages total clean money and substantial transparency coming into the system of political funding.

Electoral bond means a bond issued in the nature of promissory note which shall be a bearer banking instrument and shall not carry the name of the buyer or payee;

Authorised bank means the State Bank of India authorised to issue and encash the bonds in the branches as specified.

A donor can purchase electoral bonds from a specified bank only by a banking instrument.  He would have to disclose in his accounts the amount of political bonds that he has purchased.  The life of the bond would be only 15 days.  A bond can only be encashed in a pre-declared account of a political party.  Every political party in its returns will have to disclose the amount of donations it has received through electoral bonds to the Election Commission.  The entire transactions would be through banking instruments.  As against a total non-transparency in the present system of cash donations where the donor, the donee, the quantum of donations and the nature of expenditure are all undisclosed, some element of transparency would be introduced in as much as all donors declare in their accounts the amount of bonds that they have purchased and all parties declare the quantum of bonds that they have received.

How much each donor has distributed to a political party would be known only to the donor.  This is necessary because once this disclosure is made, experience has shown, donors would not find the scheme attractive and would go back to the less-desirable option of donating by cash.  In fact, the choice has now to be consciously made between the existing system of substantial cash donations which involves total unclean money and is non-transparent and the new scheme which gives the option to the donors to donate through entirely a transparent method of cheque, online transaction or through electoral bonds.  While all three methods involve clean money, the first two are totally transparent and the electoral bonds scheme is a substantial improvement in transparency over the present system of no-transparency.

Eligibility for purchase and encashment of electoral bond

– Citizen of India or incorporated or established in India.

– An Individual can buy bonds, either singly or jointly with other individuals.

– Registered Political Parties and secured not less than one per cent of the votes polled in the last general election to the House of the People or the Legislative Assembly shall be eligible to receive the bond.

– Encashed by an eligible political party only through a bank account with the Authorised bank.

Applicability of Know Your Customer Norms: Yes

Denomination. – INR 1000, 10,000, 1,00,000, 10,00,000 and 1,00,00,000.

Validity of Bond. – 15 Days with same day credit facility to Political party

Name of Authorised Bank: State Bank of India

Other Key Points.

– Buyer Information will be confidential

– Non-Know Your Customer compliant application shall be rejected.

– Bond shall be non-refundable

– Available for purchase by any person for a period of ten days each in the months of January, April, July and October

– Additional period of thirty days shall be specified by the Central Government in the year of general elections

– No interest shall be payable on the bond.

– No commission, brokerage or any other charges for issue of bond shall be payable by the buyer against purchase of the bond.

– All payments for the issuance of the bond shall be accepted in Indian rupees, through demand draft or cheque or through Electronic Clearing System or direct debit to the buyer’s account.

– Where payment is made through cheque or demand draft, the same shall be drawn in favour of the issuing bank at the place of issue such bond.

– The bond can be encashed only by an eligible political party by depositing the same in their designated bank account.

– The amount of bonds not encashed within the validity period of fifteen days shall be deposited by the authorised bank to the Prime Minister Relief Fund.

– The face value of the bonds shall be counted as income by way of voluntary contributions received by an eligible political party, for exemption from Income-tax under section 13A of the Income Tax Act, 1961.

– The bonds shall not be eligible for trading

The Government is willing to consider all suggestions to further strengthen the cleansing of political funding in India.  It has to be borne in mind that impractical suggestions will not improve the cash denominated system.  They would only consolidate it, says Mr. Arun Jaitley, the hon’ble Finance Minister.

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