The Legal Framework for Donations
The foundation for political funding in India is laid out in the Representation of the People Act (RPA), 1951. Section 29B of this act explicitly permits registered political parties to accept voluntary contributions from any individual citizen or domestic
company. This ensures that supporting a political party financially is a legally recognised activity. However, the law strictly prohibits parties from accepting contributions from foreign sources or government-owned companies, a measure designed to prevent external influence and misuse of public funds. This framework aims to balance the need for parties to raise funds with the imperative of keeping the democratic process free from undue influence.
Donation Methods and Cash Limits
When an individual decides to donate, there are several ways to do so. Contributions can be made through banking channels like cheques, demand drafts, and digital transfers such as net banking or UPI. There is a significant restriction on cash donations. An individual can contribute a maximum of ₹2,000 in cash to a political party. Any amount exceeding this must be made through a traceable banking method. This rule was put in place to curb the flow of unaccounted money in politics and encourage transparent, documented transactions.
The Rise and Fall of Electoral Bonds
Introduced in 2018, the Electoral Bond Scheme was presented as a transparent method for political funding. These were interest-free bearer instruments that an individual or company could purchase from the State Bank of India and donate to a registered political party. However, the scheme was highly controversial because it made the donor's identity anonymous to the public, although the government could access this data. In a landmark judgment on February 15, 2024, the Supreme Court of India struck down the scheme as unconstitutional. The court ruled that the anonymity provided by the bonds violated the voters' fundamental right to information under Article 19(1)(a) of the Constitution, which includes the right to know the sources of political funding.
Disclosure, Transparency, and Anonymity
After the termination of the electoral bond system, the rules on transparency reverted to the previous framework. According to Section 29C of the Representation of the People Act, political parties are required to prepare an annual report detailing all contributions received in excess of ₹20,000 from any single person or company. This report, which must include the donor's name, address, and PAN for contributions above the threshold, is submitted to the Election Commission of India. Donations below ₹20,000 can be made without disclosing the donor's identity, often categorised as 'small' or 'unknown' sources of income. This creates an ongoing tension between protecting a donor's privacy and ensuring full transparency in the electoral process.
Tax Benefits for Individual Donors
To encourage legitimate political contributions, the Income Tax Act, 1961, offers a tax incentive. Under Section 80GGC, any individual taxpayer can claim a 100% deduction on the amount they have contributed to a registered political party or an electoral trust. There is one crucial condition: the donation must not be made in cash. To claim this benefit, the contribution must be made via cheque, digital transfer, or other banking channels. This deduction is limited to the taxpayer's total taxable income for the financial year, meaning you cannot claim a deduction for an amount greater than what you owe in taxes. This provision serves the dual purpose of incentivising funding through transparent routes while offering a financial benefit to the contributor.
