The Complete background Story of Political Funding

Every Political Party, whether big or small, need funds to run its’ election campaigns, advertise heavily and buy votes to win the elections. With elections around the corner in various Legislative Assemblies and the upcoming elections of Lok Sabha in 2019, the political funding flight is on the runway to take-off.

I. Mode of Individual Funding to Political Parties

(a) State or Public Funding

Indirect Funding by Government such as access to free Media, free access to public places for rallies, free or subsidised space for party headquarters, tax exemption under Income Tax Act, 1961 under section 13A (discussed in detail later) etc.

(b) Individual Person funding

Funding from individuals. The Individuals get Tax deduction u/s 80GGC to the tune of 100% of donation amount (not in cash)

(c) Electoral Bond

Issued by RBI, which can be bought and deposited into the account of a political party without disclosing the Donor’s identity as introduced by Finance Act, 2017

(d) Anonymous cash donations

Political parties can receive anonymous donations in cash without disclosing the name of the donor to the tune of Rs. 2,000/- from one person (earlier Rs. 20,000/- before Finance Act, 2018) – explained in detail later.

II. Corporate Funding to Political Parties

Corporate Funding is the most preferred and most used method of funding political parties in India. In fact in the year 2013-14, 90% of the funding to political parties came from Corporate Sources.

(a) Donations made through cheque/bank transfer / in-kind donations:

1. Direct Funding to Parties

Corporate funding to political parties is governed by Section 182 of The Companies Act, 2013 which earlier provided that (before Finance Act, 2017) as below:

a. Company needs to be at least 3 (three) years old;

b. Donate maximum 7.5% of average net profits of past 3 years; (now amended)

c. Disclose such donations in Profit & Loss A/c (including name of political party); (now amended)

d. Approval from Board of Directors required;

The Corporate also enjoy Income Tax deduction under Section 80GGB up to 100% of donation made.

2. Funding through Electoral Trusts

Funding though Electoral Trusts have gained significance since no direct linkage of any corporate to any particular political party can be made (i.e. allows companies to give money to parties without appearing to favour one over the other) and thus the close relations between any of them are not exposed to the public. The relative significance of the use of Electoral Trust mode can be further understood on the below link:

https://www.hindustantimes.com/interactives/electoral-trusts-explained/

The Corporate enjoys the income tax deduction under section 80GGB without any limit on the same for donations made to Electoral Trusts.

3. Funding through Electoral Bonds

Electoral Bonds introduced by Finance Act, 2017 is a relatively new instrument in the mode of political funding but it certainly provides the anonymity to the Donor. The Donor can simply purchase an Electoral Bond, which is like a bearer instrument and deposit it with the Political Party. So now, instead of depositing cash directly to the political party by being anonymous, the other channel for the same is Electoral Bond.

(b) Donations made through anonymous cash donations

Political parties can receive anonymous donations in cash without disclosing the name of the donor to the tune of Rs. 2,000/- from one person (earlier Rs. 20,000/- before Finance Act, 2018)

(Republished with Amendments)

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2 Comments

    1. Chetaniraj says:

      Sandip Sir,

      Thank you for the comment! The thing is i am not pinpointing anyone on it. I shouldn’t be worried about anything in writing such an article.

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