What is Electoral Bond Scheme: Meaning, Validity, Eligibility, Price, Benefits

The Indian Government introduced the Electoral Bond Scheme to cleanse the political funding system in India. Electoral bonds are issued under this scheme, which are bearer banking instruments used for funding eligible political parties in India. This scheme aims to curb the influence of black money in politics. 

What Is The Electoral Bond Scheme?

The government introduced the Electoral Bond Scheme in the Finance Bill 2017 and implemented this scheme in 2018. Under this scheme, electoral bonds are issued, which are instruments or securities used to donate funds to political parties. These bonds are similar to bearer bonds or promissory notes, where the issuer (bank) is the custodian and pays the bondholder (political party). 

Since electoral bonds are bearer instruments, no ownership information is recorded, and the holder of the document is assumed to be its owner. The name and other details or information of the donor are not entered on the instrument, and thus, electoral bonds are anonymous.

An electoral bond is a financial tool used to make donations to political parties. The general public can also issue electoral bonds to fund eligible political parties. However, a political party eligible to run campaigns must register under Section 29A of the Representation of the People Act, 1951, to receive electoral bonds. 

Electoral bonds play a similar role as banknotes, payable to the bearer free of interest and demand. Any individual party can purchase these bonds digitally or through a DD or cheque. 

Why Were Electoral Bonds Introduced?

Electoral bonds were introduced to bring transparency to political funding in India. They promote transparency since political parties receive donations through formal banking channels that are audited by government authorities. The identity of the donors is anonymous and remains confidential, thus reducing the risk of intimidation or retaliation for their political affiliations.

The concept behind the introduction of electoral bonds was to reduce black money in politics and to provide a transparent and legal mechanism for individuals and entities to contribute to political parties. They serve as a means for donors of the bond (individuals and entities) to make donations to registered political parties while maintaining anonymity.

How Do Electoral Bonds Work?

Individuals and entities can purchase electoral bonds by making payments from a bank account. The electoral bonds will not have the name of the payee. It will have a life of only 15 days, during which it can be used to make donations to political parties. 

The electoral bonds handed over to political parties can be encashed only through designated bank accounts. The political parties should approach the electoral commission and file returns on the total electoral bonds that they have received. 

Electoral bonds are available for purchase for only 10 days in January, April, July and October, as specified by the Central Government. The Centre can specify an additional 30-day period in a general election year. The electoral bonds are issued or can be purchased for any value in the multiples of Rs.1,000, Rs.10,000, Rs.1,00,000, Rs.10,00,000 and Rs.1,00,00,000.

Here’s how the electoral bond works:

• Notified banks will issue electoral bonds.
• The donor can approach the notified banks and purchase the bonds. The donor can purchase these bonds through cheque or digital payment. Thus, the identity of the donors is protected.
• The donor must donate these bonds to the political party of their choice.
• The political party must encash these bonds into the account registered with the Election Commission of India (ECI). The ECI will allot a verified account to the party, and all electoral bond transactions will be made through this account.
• Only the political parties registered under Section 29A of the Representation of the People Act, 1951 and secured at least 1% of the votes polled in the previous general election to the Legislative Assembly or House of the People are eligible to receive electoral bonds.

Who Can Purchase Electoral Bonds? 

Any citizen of India and an entity/corporation established in India can purchase an electoral bond from the authorised State Bank of India (SBI) branches. It can be purchased individually or jointly with other individuals. However, purchases can be made through only KYC-compliant accounts to make donations to a political party.

In brief, the following persons established in India can purchase an electoral bond:

• A Hindu Undivided Family (HUF) 
• A company 
• A firm 
• An Association of Persons (AOP) or a Body of Individuals (BOI), whether incorporated or not
• Every other artificial juridical person 
• Any office, agency or branch owned or controlled by an artificial judicial person

Validity/maturity Of Electoral Bonds

The validity or maturity of electoral bonds is 15 days from the date of their issuance. 

Documents Required For Buying Electoral Bonds

The following documents are required to purchase an electoral bond:

• Application form and pay-in-slip
• Copy of citizenship proof
• KYC documents
• In the case of payment from a bank account other than SBI, a proforma from the remitting branch, as provided on the SBI website, declaring the source of funds on the letterhead of the branch, signed and stamped by the branch manager

The list of citizenship proof documents is as follows:

In the case of individuals, any of the following documents:

• Passport
• Voter ID card 
• Letter from the national population register for the states of Assam, J&K and Meghalaya 

In the case of non-individuals, any of the following documents:

• Certificate of incorporation 
• Partnership deed or trust deed 
• Any other document showing incorporation or establishment in India

The list of KYC documents for individuals is as follows:

• Aadhaar card with current address 
• Permanent Account Number (PAN) or Form No. 60 as defined in Income Tax Rules, 1962

In case the PAN is not available, or the Aadhaar card does not have the current address, any one of the following Officially Valid Documents (OVDs) can be submitted:

• Passport
• Driving license
• Voter’s ID card issued by ECI
• Job card issued by NREGA signed by a State Government Officer
• Letter issued by the national population register having the name and address details

The list of KYC documents for a company, firm or trust is as follows: 

• Certificate of incorporation or registration certificate
• Memorandum of Association and Articles of Association/partnership deed/trust deed
• Resolution from the board of directors along with a power of attorney given to its managers, employees or officers to transact on its behalf in case of a company
• PAN of the company/firm/trust
• Aadhaar number and PAN or Form 60 as defined in the Income Tax Rules, 1962, issued to officers, managers or employees holding an attorney to transact on the company/firm/trust’s behalf
• Declaration of beneficial ownership in the specified format 
• Photographs and self-attested KYC documents of each beneficial owners

Electoral bonds tax exemption

Electoral bond donations made by individuals or entities are tax-exempt under Section 80GG and Section 80GGB under the Income Tax Act, 1961. Political parties can receive donations as per the provisions of Section 13A of the Income Tax Act.

Benefits of electoral bonds

• Every electoral bond must be redeemed by a bank account disclosed by the ECI, thus reducing malpractice.
• Electoral bonds help to hold back political parties that operate only to collect funds from the public since only registered parties attaining at least 1% of the votes in the general election can get electoral funding.
• Electoral bonds ensure that the government’s goal to make election funding entirely digitised and safe is fulfilled. 
• Electoral bonds enhance transparency and accountability as political parties can redeem them through designated bank accounts.
• Since electoral funds payments are made through online modes, DD or cheque, it discourages cash transactions and preserves donor anonymity.

Impact of electoral bonds on Indian democracy

Between 2016-17 and 2021-22, 7 national parties and 24 regional parties received a total donation of Rs.9,188.35 crore from electoral bonds. 

The highest donations from electoral bonds, totalling Rs.3,438.8237 crore, were received in 2019-20. The year 2021-22 saw donations worth Rs.2,664.2725 crore through electoral bonds, which witnessed 11 Assembly elections.

Out of the total donations of Rs.16,437.635 crore received by the 31 political parties, 55.90% came from electoral bonds, 28.07% from the corporate sector and 16.03% from other sources.

The electoral bond sales data accessed under the Right to Information Act in May 2023 showed the following:

• Five cities - Kolkata, Mumbai, New Delhi, Hyderabad and Chennai, accounted for 90% of all electoral bonds sold. 
• Mumbai is the highest contributor at 26.16% of the total electoral bonds sold.
• Bengaluru accounted for just over 2% of the total bond sales despite being the tech capital of India.
• The New Delhi branch of the SBI is the preferred choice for redeeming electoral bonds, with 64.55% of all bonds redeemed so far.
• Hyderabad and Kolkata were the second and third choices for redemption, while Mumbai had only 1.51% of all electoral bonds redeemed despite accounting for over 26% of all sales.