Cash donation to parties capped at Rs 2k, poll bonds proposed

In a major move aimed at promoting transparency in political funding, Finance Minister Arun Jaitley today 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.
In his Budget speech, Jaitley said, "In accordance with
the suggestion made by the Election Commission, the maximum amount of cash donation that a political party can receive will be Rs 2,000 from one person. Political parties will be entitled to receive donations by cheque or digital mode from their donors."

Besides, the Budget proposed an amendment to the RBI Act to enable the issuance of electoral bonds in accordance with a scheme that the government would frame in this regard.
"Under the scheme, a donor could purchase bonds from authorised banks against cheque and digital payments only. They shall be redeemable only in the designated account of a registered political party. These bonds will be redeemable within the prescribed time limit from issuance of bond," he said.
Political parties would know who has given the money and they will disclose in returns how much bonds they have got.
"Bonds will be bought through cheque and bonds will be encashed with banks. It will be clean money and ... transparent, as the buyer is known," Jaitley said.

Shardul Amarchand Mangaldas Partner Amit Singhania said the Budget proposes to provide that the income of political parties will be exempt only if no donation more than Rs 2,000 is received in cash and the political party files an income tax return.
"This is a welcome step in ensuring transparency in political party funding as it curbs not only the cash donation but also mandates compulsory filing of tax returns," Singhania said.