Electoral Reforms In India

Donations to recognised Political Parties come under EC lens


From UPSC perspective, the following things are important :

Prelims level : NA

Mains level : Issues with Political Funding

The Election Commission’s ongoing drive to clean up the electoral space has now gone beyond RUPPs (registered unrecognised political parties) to cover recognised national and State parties.

What is Political Funding?

  • Political Funding implies the methods that political parties use to raise funds to finance their campaign and routine activities.
  • A political party needs money to pitch itself, its objectives, and its intended actions to get votes for itself. (Reference)

Why need political funding?

  • Across the world, political parties need access to money in order to reach out to the electorate, explain their policies and receive inputs from people.
  • And in order to do the same, parties resort to political party funding.

Generally who makes these funding?

  • Individuals: One of the primary sources of this funding is voluntary contributions made by individuals.
  • Corporates: Besides this, corporates pay hefty donations to parties in different forms.
  • Foreign aid: This is yet another source but highly controversial.

Statutory Provisions

  • Section 29B of the Representation of the People Act (RPA) entitles parties to accept voluntary contributions by any person or company, except a Government Company.
  • Section 29C of the RPA mandates political parties to declare donations that exceed 20,000 rupees. Such a declaration is made by making a report and submitting the same to the EC. Failure to do so on time disentitles a party from tax relief under the Income Tax Act, 1961.

Methods used by Indian Political Parties

  1. Individual Persons: Section 29B of RPA allows political parties to receive donations from individual persons.


  1. State/Public Funding: Here, the government provides funds to parties for election related purposes. State Funding is of two types:
  • Direct Funding: The government provides funds directly to the political parties. Direct funding by tax is prohibited in India.
  • Indirect Funding: It includes other methods except direct funding, like free access to media, free access to public places for rallies, free or subsidized transport facilities. It is allowed in India in a regulated manner.


  1. Corporate Funding: In India, donations by corporate bodies are governed under the Companies Act, 2013. Section 182 of the Act provides that:
  • A company needs to be at least three years old to be able to donate to a political party.
  • Companies can donate up to 7.5% of average net profits made during three simultaneous preceding financial years. (Now removed after Finance Act, 2017)
  • Such contributions must be disclosed in the company’s profit and loss account. (Removed)


  1. Electoral Trusts: A non-profit company created in India for orderly receipt of voluntary contributions from any person like an individual or a domestic company.
  • According to the Election Commission Guidelines, all electoral trusts formed after January 2013 are required to declare details of the money received and disbursed.
  • The Central Government rules mandate these firms to donate 95% of their total income to registered political parties in a financial year.

Issues with Political Funding

  • Money laundering: One of the biggest disadvantages of the corporate funding is the use of fake companies to route black money.
  • Influence of contributor: Influence of people and companies over political parties to which they provide funds.
  • Election malpractices: There are various gaps in Indian rules, the benefit of which political parties take to avoid any kind of reporting.
  • Money politics: Hidden sources of funding lead to more spending of funds in election campaigns, thus impacting the economy of the country.

Recent steps taken

  • FCRA Reforms: In March, 2018, the government passed a key amendment to the Foreign Contribution Regulation Act, 2010 allowing foreign companies to fund political parties in India.
  • Electoral Bonds Schemes: The government notified the Electoral Bond Scheme on 2nd January, 2018 to establish and cleanse the system of political funding in the country.

What is Electoral Bond Scheme?

  • An electoral bond is a bearer instrument like a Promissory Note.
  • It can be purchased by any citizen of India or a body incorporated in India to donate to the political party of their choice.
  • Donor’s name is not there on the bond.
  • These bonds can be used for making donations to the political parties registered under Section 29A of the RP Act, 1951.
  • The party should have secured not less than one per cent of the votes polled in the last general election to the Lok Sabha or a Legislative Assembly.

Issues with the scheme

  • Opaque funding: While the identity of the donor is captured, it is not revealed to the party or public. So transparency is not enhanced for the voter.
  • No IT break: Also income tax breaks may not be available for donations through electoral bonds. This pushes the donor to choose between remaining anonymous and saving on taxes.
  • No anonymity for donors: The privacy of the donor is compromised as the bank will know their identity.
  • Differential benefits: These bonds will help any party that is in power because the government can know who donated what money and to whom.

Way forward

Former Chief Election Commissioner SY Quraishi has suggested an alternative worth exploring:

  • A National Electoral Fund to which all donors can contribute.
  • The funds would be allocated to political parties in proportion to the votes they get.
  • Not only would this protect the identity of donors, it would also weed out black money from political funding.
  • There can be a tax benefit for those who donate to the fund.


Try this question from our AWE Initiative

Q.2) Examine the issues with political funding in India. How far has the introduction of electoral bonds succeeded in dealing with the issues with political funding? (10 marks)


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