In order to “cleanse the system of political funding in the country” and in keeping with the government’s desire to move to a cashless economy, Union Finance Minister introduced an electoral bonds scheme. The scheme was announced during the 2017 Budget, which aims to account for the donations made to all major political parties.
Electoral bonds, which were introduced with the Finance Bill 2017, are instruments/securities that are used to give funding to political parties. In the year 2018, the Electoral Bonds were announced. These bonds are similar to bearer bonds or promissory notes in that the issuer (bank) serves as the custodian and pays the bondholder (political party).
The concept of electoral bonds is an important topic with respect to RBI Grade B exam.
You must check the RBI Grade B exam previous year papers to know the exam level and types of questions asked from this chapter.
What is Electoral Bonds?
An electoral bond is designed to be a bearer instrument like a Promissory Note — in effect, it will be similar to a banknote that is payable to the bearer on demand and free of interest. It can be purchased by any citizen of India or a body incorporated in India.
Why it is in News?
The first sale of electoral bonds will start from March 1, 2018, for a period of 10 days at four main branches of the State Bank of India in Mumbai, Chennai Kolkata, and New Delhi. These bonds will have a life of 15 days, and citizens of India or an entity incorporated or established in the country can purchase them.
Electoral Bonds Characteristics and Processes Involved
These are characteristics which are important to keep in mind from the exam point of view:
- Notified banks are the issuers of these bonds.
- These banks may be approached by the donor to purchase the bonds.
- The donor will be able to purchase the bonds using a check or a digital payment. As a result, the contributors' identities are shielded (if the donors are identified, they may get caught up in political rivalry-especially if the donor is a businessman).
- These bonds are given to the political party by the donor.
- The political party must deposit the money into an account with the Election Commission of India.
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How do You Use It?
The procedure is simplified and straight-forward. A person can donate to a party and check the details through online process. The following steps explain the procedure:
- The bonds will be issued in multiples of Rs. 1,000, Rs. 10,000, Rs. 1 lakh, Rs. 10 lakh, and Rs. 1 crore and will be available at specified branches of the State Bank of India. They can be bought by the donor with a KYC-compliant account.
- Donors can donate the bonds to their party of choice which can then be cashed in via the party's verified account within 15 days.
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What are the Other Conditions?
There different provisions mentioned in this rule which is to be followed by all the political parties. This to ensure a level playing field to all the participating political parties. These are:
- Every party that is registered under section 29A of the Representation of the Peoples Act, 1951 (43 of 1951) and has secured at least one percent of the votes polled in the most recent Lok Sabha or State election will be allotted a verified account by the Election Commission of India. Electoral bond transactions can be made only via this account.
- The bonds will be available for purchase for a period of 10 days each at the beginning of every quarter, i.e. in January, April, July, and October as specified by the Central Government. An additional period of 30 days shall be specified by the Central Government in the year of Lok Sabha elections.
- The electoral bonds will not bear the name of the donor. In essence, the donor and the party details will be available with the bank, but the political party might not be aware of who the donor is. The intention is to ensure that all the donations made to a party will be accounted for in the balance sheets without exposing the donor details to the public.
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Will Electoral Bonds be Tax-Deductible?
Yes, electoral bond is an effort made to cleanse the system of political funding in India. These transactions would be under the purview of tax exemptions.
- During the Budget presentation in February 2018, the Finance Minister had proposed that the maximum amount of cash donation that a political party can receive be capped at Rs. 2,000 and that parties are entitled to receive donations by cheque or digital mode, in addition to electoral bonds.
- In a press conference that followed, he added that donations would be tax-deductible. “A donor will get a deduction and the recipient, or the political party will get tax exemption, provided returns are filed by the political party,”.
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