Will the Rs 2,000 cap on cash donations for political parties bring more transparency in the system?

The maximum amount of cash donation which a political party can receive from one person has been capped at Rs 2,000 – reduced to 10% of the existing limit of Rs 20,000.

In his budget speech on Wednesday, Union Finance Minister Arun Jaitley referred to the Election Commission’s recommendation in December 2016 to ban anonymous contribution “above or equal to” the amount of Rs 2,000.

The Commission had also asked the government to amend laws in order to allow tax exemptions only to parties that contest elections and win seats, either in the assembly or the Lok Sabha.

So far, there was a restriction in place with regard to cash or anonymous donations in excess of Rs 20,000 by any person or company in a financial year under Section 29C in The Representation of the People Act, 1951.

Basically, it meant that cash donations above Rs 20,000 could be received as long as names of the donors were declared to the income tax authorities. But the loophole allowed political parties to show multiple receipts of Rs 19,999 or less.

Now, however, anything above Rs 2,000 simply cannot be received in cash, Jaitely said in his speech.

“In accordance with the suggestion made by the Election Commission, the maximum amount of cash donation that a political party can receive will be Rs 2000 from one person. Political parties will be entitled to receive donations by cheque or digital mode from their donors” 

Avoiding scrutiny

“The limit on cash donation from one source set at Rs 2,000 for political parties will not make much difference,” said Jagdeep Chhokar, former professor at the Indian Institute of Management, Ahmedabad, and one of the founding members of the Association for Democratic Reforms, a non-profit election monitor. “Parties now will resort to multiple receipts of Rs 1,999 each like they did to evade the old limit of Rs 20,000 cash donations, issuing multiple receipts of Rs 19,999.”

“So, all the contributions below Rs 2,000 will manage to evade scrutiny,” he said. “Also as far as sources of donation are concerned, political parties receive 70% of donation from unknown sources which will now come in units of less than Rs 2,000 each.”

While political parties are exempted from income tax accruing under most of the income heads including house property, voluntary contributions and other sources, they are needed to file income tax returns disclosing the entire amount they receive through every source, including donations, in a financial year.

Others agreed with Chhokar’s analysis:

But there were also those who favoured the move:

Ensuring distance

On Wednesday, Jaitley also announced a proposal to amend the Reserve Bank of India Act in order to enable the apex bank to issue electoral bonds in according with which the government shall be framing a scheme:

“Under this scheme, a donor could purchase bonds from authorised banks against cheque and digital payments only. They shall be redeemable only in the designated account of a registered political party. These bonds will be redeemable within the prescribed time limit from issuance of bond.”  

Details of the scheme remained unclear at the time of writing. If it is to bring transparency, Chhokar said, much will depend on the details the Reserve Bank of India discloses about those who purchase these bonds, and once more details about the scheme were known.

There was a fear, Chhokar said, that the provision for these bonds could go the way of electoral trust, which were originally introduced to ensure distance between donors and political parties. Most big corporate preferred donating to these trusts, as these donations were not party-specific and the corporates were saved from the fear of persecution at the hands of any political party they had not donated to.

“Also, if the objective is to bring transparency in political funding, why involve the RBI,” Chhokar asked, “when the matter regarding bringing political parties under the ambit of the Right to Information Act is already in Supreme Court?”

“It would be much easier if the government of India revises its affidavit submitted to the Supreme Court to say that political parties should come under the purview of the RTI Act as already decided by the Central Information Commission three years ago,” Chhokar pointed out.