Cash donation to parties capped at ₹2K, poll bonds proposed

In a major move aimed at promoting transparency in political funding, Finance Minister Arun Jaitley on Wednesday announced capping of anonymous cash donations to political parties at Rs 2,000 and introduced electoral bonds.

The bonds, which will not carry the name of the donor, can be purchased from authorised banks against cheque or e- payment. Such securities can be redeemed only through registered accounts of a political party.

"Objective of this year's Budget is that the pace of economic growth should be significantly pushed, political and economic system is cleansed, and honest taxpayers are incentivised and those who don't pay tax even after income should be brought under tax net," Jaitley told a news conference after presenting the Budget for 2017-18 in Parliament.

Towards this objective, the Budget limits donations to political parties from a single anonymous source to 10 per cent of the current Rs 20,000 cap. This in line with a recommendation by the Election Commission.

Political parties will be entitled to receive donations by cheque or digital mode from their donors. "The system involves the following steps - the donor and the donee will get a tax exemption. A donor will get a deduction, donee as a political party will get an exemption provided the returns are filed by the political party" and donations by any single donor above Rs 2000 are in form of cheque or digital mode, he said. Also, an additional amendment has been proposed to the Reserve Bank of India Act to enable issuance of electoral bonds.

"A notified bank will be issuing bonds and any donor can buy those bonds from cheque or by digital payment. So it is white, clean money, tax-paid money," he said. "Those bonds by the donor can be given to the political parties. They will be redeemable within short period of time."

The bonds would be redeemable in the notified account of a political party. "That means every political party recognised by the Election Commission will have to notify one account in advance to the Election Commission and this can be encashed and redeemed in that one account."

Jaitley said the bonds would be "bearer in character because if names are disclosed, identities are revealed then it is as good as paying money through a cheque which is the present status quo."

"In the present status quo, donors have preferred cash than cheque... present status quo has failed so you have to experiment with the new system. So it's a new system...returns will have to be filed. The method of enforcement is very simple - you don't comply with these regulations, you lose your exemption," he said.

Jaitley said the new method of donation would involve the donor giving clean money and parties receiving money in their bank accounts, so that is also clean money.