The Legal Framework for Donations
The foundation of India's political funding regulations rests on several key laws. The Representation of the People Act, 1951, requires political parties to report all contributions received above ₹20,000 to the Election Commission of India. The Income
Tax Act, 1961, grants tax exemptions to political parties for their income, provided they maintain audited accounts and file returns. It also allows individuals (under Section 80GGC) and Indian companies (under Section 80GGB) to claim 100% tax deductions on their contributions, but only if they are made through non-cash methods. Cash donations to political parties are capped at a mere ₹2,000 from a single source.
Corporate Funding: Rules and Limits
Corporate donations are a major source of funds for political parties. Under the Companies Act, 2013, a company that has been in existence for at least three years can contribute to political parties. A significant change occurred via the Finance Act, 2017, which removed the previous cap that limited a company's donation to 7.5% of its average net profits over the last three years. This amendment now allows companies to donate unlimited amounts. While companies must disclose the total amount donated in their profit and loss statements, they are no longer required to name the specific party that received the funds, a change that has fueled debates around transparency.
The Controversial Electoral Bonds Scheme
Introduced in 2018, the electoral bonds scheme was designed as a way for individuals and companies to donate money to political parties anonymously. These interest-free bearer bonds could be purchased from the State Bank of India (SBI) and given to a registered political party, which would then redeem them. Proponents argued this would bring transparency by moving donations from cash to the banking system. However, critics raised serious concerns, arguing the anonymity it provided to donors, especially large corporations, could lead to quid pro quo arrangements and violated the citizen's right to information. In a landmark decision on February 15, 2024, the Supreme Court of India struck down the electoral bonds scheme as unconstitutional, directing the SBI to release all details of donors and recipients.
The Ban on Foreign Contributions
A cornerstone of India's political finance regulation is the strict prohibition on foreign funding for political parties. The Foreign Contribution (Regulation) Act, or FCRA, explicitly bars political parties and candidates from accepting donations from a 'foreign source'. This is intended to prevent foreign governments, companies, or entities from influencing India's electoral process and national interest. However, amendments made through the Finance Bill have been contentious. For instance, a change in the definition of what constitutes a 'foreign company' effectively allowed donations from the Indian subsidiaries of foreign firms, provided their foreign ownership was within a certain limit, sparking debates about loopholes in the law.
Transparency vs. Anonymity: The Core Debate
The discussion around political funding in India, much like in the US, revolves around the tension between donor privacy and public transparency. In the US, the debate often centers on the influence of 'dark money' and Super PACs, which can spend unlimited amounts to influence elections, often without disclosing their donors. In India, while electoral bonds were struck down, the system still has areas of opacity. Donations under ₹20,000 do not need to be individually disclosed by parties, creating a channel for funds from unknown sources. The core challenge remains how to create a system that encourages legitimate funding while ensuring voters know who is financing the political parties competing for their vote, a principle the Supreme Court has affirmed as vital for a healthy democracy.
