Money is the engine of politics, but how is it regulated? The Indian legal framework for political donations is a complex web of laws, rules, and landmark court judgments that shape the country's democratic process. Here’s a breakdown of how it works.
The Core Legal Pillars
Several key laws form the bedrock of political funding regulation in India. The Representation of the People Act (RPA), 1951, is central, mandating that political parties register with the Election Commission of India (ECI) and report contributions. Specifically, Section 29C requires parties to report all donations exceeding ₹20,000 to the ECI. The Companies Act, 2013, governs corporate donations, while the Income Tax Act, 1961, provides tax exemptions to parties, provided they comply with these disclosure norms. Finally, the Foreign Contribution (Regulation) Act, or FCRA, generally prohibits parties from accepting funds from foreign sources to prevent external influence.
Who Can Donate and How Much?
Both individuals and corporate entities can legally donate to political parties. For individuals, donations made through cheques or digital means are eligible for a 100% tax deduction under Section 80GGC of the Income Tax Act; cash donations are not. For companies, Section 182 of the Companies Act allows them to contribute any amount to any political party, provided it is approved by a Board resolution and not made in cash. Amendments made via the Finance Act, 2017, removed the earlier cap which limited corporate donations to 7.5% of a company's average net profits over the previous three years. However, government companies are barred from making any political contributions.
The Rise and Fall of Electoral Bonds
Introduced in 2018, the Electoral Bond Scheme was presented as a transparent method for political donations. These were interest-free instruments, like a promissory note, that could be purchased by any Indian citizen or company from the State Bank of India and donated to a registered political party. The key feature—and point of contention—was anonymity; the name of the donor was not disclosed. While the government argued this protected donors from potential retribution, critics contended it created opacity and could facilitate quid pro quo arrangements between corporations and ruling parties.
The Supreme Court's Landmark 2024 Ruling
In a historic verdict on February 15, 2024, a five-judge Constitution Bench of the Supreme Court struck down the Electoral Bond Scheme as unconstitutional. The Court ruled that the scheme's anonymity violated the voter's fundamental 'right to information' under Article 19(1)(a) of the Constitution, which is essential for making informed electoral choices. The judgment also struck down the related amendments to the Companies Act that allowed for unlimited and undisclosed corporate donations. The State Bank of India was ordered to stop issuing the bonds and to furnish all details of past purchasers and recipient parties to the Election Commission for public disclosure.
The Landscape After Electoral Bonds
With the scrapping of electoral bonds, India's political funding framework has largely reverted to the pre-2018 system, albeit with some changes. Donors have returned to using mechanisms like electoral trusts, which were introduced in 2013. These trusts can receive donations from individuals and companies and then distribute the funds to political parties. While the trust must disclose its donors, it is not required to link a specific donor to a specific party, offering a layer of anonymity. Direct donations via cheque and digital transfer remain a primary channel, with parties required to report all contributions above ₹20,000 to the ECI.
The Election Commission's Watchful Eye
The Election Commission of India (ECI) is the primary body responsible for monitoring political funding and expenditure. It enforces the Model Code of Conduct during elections and scrutinises the expenditure statements submitted by candidates and the contribution reports filed by political parties. Candidates must submit a detailed account of their election expenses within 30 days of the results being declared. Failure by parties to submit their annual contribution reports can lead to the loss of tax exemptions. However, the ECI's power is often challenged by the sheer volume of undisclosed cash transactions and the practical difficulty of tracking all expenses.
