As India gears up to celebrate the festival of democracy, two significant mechanisms have gained prominence: Electoral Bonds and Electoral Trusts. These mechanisms play a crucial role in shaping the financial landscape of political parties and their funding sources.  

The Electoral Trusts Scheme was first introduced by the UPA government in 2013, predating the more controversial Electoral Bonds Scheme, which came into effect in 2018. Although both schemes aim to channel funds to political parties, they adhere to distinct regulations and frameworks. 

It is important to understand these mechanisms to gain insight into the dynamics of political financing in India and the ongoing endeavours to improve transparency and accountability in political funding. 

What are Electoral Bonds? 

Electoral Bonds were introduced in 2018 to promote transparency and accountability in political funding. These bonds allow individuals, corporations, and entities to donate funds to political parties anonymously. However, the anonymity aspect has been a point of contention, with critics arguing that it compromises transparency in political funding. 

Understanding Electoral Bonds 

1. Anonymity: Donors can contribute funds to political parties anonymously through Electoral Bonds, preserving their identity. 

2. Exclusivity: Electoral Bonds are issued by notified banks for specified periods, limiting the availability of these instruments. 

3. Disclosure: Political parties are not required to disclose the identity of donors receiving funds through Electoral Bonds, raising concerns about transparency. 

4. Limitations: Electoral Bonds have faced criticism for their potential to facilitate undisclosed and opaque political funding. 

Recent Developments  

In a historic and unanimous ruling, the Supreme Court in February 2024 declared the electoral bonds scheme as unconstitutional and inherently arbitrary. 

  • The court highlighted the complete anonymity granted to political donors by the scheme, along with significant legal changes that allowed wealthy corporations to make unrestricted political contributions.  
  • A five-judge Bench led by Chief Justice of India D.Y. Chandrachud determined that the government’s scheme and the related amendments to the Representation of the People Act, the Companies Act, and the Income Tax Act violated voters’ right to information regarding political funding as outlined in Article 19(1)(a) of the Constitution. 

What are Electoral Trusts?

Electoral Trusts are specialised financial entities established to manage and channel political donations to registered political parties in India. 

The Central Government amended the Income-tax Rules, 1962, with new rules called the Income-tax (First Amendment) Rules, 2013. These rules come into effect when published in the Official Gazette.

The new rule, 17CA, outlines the functions of electoral trusts, focusing on their interactions with contributors and political parties:

  1. Contributions: Electoral trusts can accept voluntary contributions from Indian citizens, Indian companies, and entities based in India, issuing receipts with specific details.
  2. Restrictions: They cannot accept contributions from non-Indian citizens, foreign entities, or certain registered electoral trusts.
  3. Payment Methods: Contributions must be via cheque, bank draft, electronic transfer, and not in cash.
  4. Political Party Distribution: They can only distribute funds to registered political parties under certain conditions.
  5. Management Expenses: They can spend a limited percentage of contributions on managing their affairs.
  6. Transparency: Electoral trusts must maintain detailed records, get their accounts audited, and submit reports to tax authorities annually.
  7. Shareholder Changes: Any changes in shareholders must be reported promptly to the tax authorities.

These rules aim to regulate electoral trusts’ financial activities and ensure transparency in political funding.

Differences between Electoral Bonds and Electoral Trusts 

Aspect Electoral Bonds Electoral Trusts 
Anonymity vs. Transparency Offers anonymity to donors Prioritizes transparency by disclosing donors 
Legal Structure Financial instruments issued by banks Legal entities formed under the Companies Act 
Disclosure Requirements Does not require disclosure of donor identities Mandates transparency in donor information 
Regulatory Oversight Limited regulatory oversight Subject to regulatory scrutiny and compliance 

Conclusion 

Both Electoral Bonds and Electoral Trusts play vital roles in political funding, albeit with distinct characteristics and implications. While Electoral Bonds offer anonymity but raise transparency concerns, Electoral Trusts prioritise transparency and accountability within a regulated framework. The debate between anonymity and transparency in political funding continues, emphasising the need for ongoing discussions and reforms to ensure integrity and fairness in electoral finance. 

FAQs

What are Electoral Bonds and Electoral Trusts?

Electoral Bonds were introduced in 2018 to enable anonymous contributions to political parties, while Electoral Trusts, established in 2013, focus on transparency and accountability in political funding by disclosing donor information.

What are the key features of Electoral Bonds?

Electoral Bonds allow donors to contribute funds anonymously, are issued by designated banks for limited periods, do not require disclosure of donor identities by political parties, and have faced criticism for potentially opaque funding practices.

What recent developments have occurred regarding Electoral Bonds?

In February 2024, the Supreme Court declared the Electoral Bonds scheme unconstitutional, citing concerns about complete anonymity for donors and legal changes facilitating unrestricted political contributions.

What are the functions and regulations of Electoral Trusts?

Electoral Trusts can accept contributions from Indian citizens, companies, and entities based in India, must disclose donor details, are subject to regulatory oversight, and prioritize transparency and accountability in political funding.