Anonymous Political Donations

The Supreme Court has agreed to Review Anonymous Political Donations. This will be an important development as transparency is crucial for Democracy. Read here to learn more.

The Supreme Court of India has agreed to review a petition challenging the provision that permits political parties to receive anonymous cash donations below ₹2,000, a rule that critics argue enables opaque and untraceable political financing.

The petition comes in the backdrop of the Court’s landmark 2024 judgment striking down the Electoral Bonds Scheme for violating citizens’ Right to Information under Article 19(1)(a).

The latest challenge brings the spotlight back on the persistent opacity in India’s political funding system, particularly the unaccounted cash flows that escape regulatory oversight.

Petition against Anonymous Political Donations

1. Total Ban on Cash Donations

• The petition seeks to end cash donations up to ₹2,000, allowed under Section 13A(d) of the Income Tax Act, 1961, which currently allows parties to accept anonymous contributions below this limit.
• Petitioners argue that this threshold creates a legal loophole, enabling political parties to split large illicit donations into multiple smaller transactions.

2. Violation of Fundamental Rights

• It asserts that Section 13A(d) violates Article 19(1)(a) by depriving voters of their Right to Information regarding sources of political funding.
• Following Association for Democratic Reforms v. Union of India (2024), voters have a recognised right to know how political parties are financed to make informed electoral choices.

3. Directions Sought Regarding Form 24A

The petition urges the Supreme Court to direct the Election Commission of India (ECI) to:

Don't miss ClearIAS updates: Add ClearIAS as a preferred source on Google Add →

• Scrutinise Form 24A contribution reports submitted by political parties.
• Reject contributions that lack mandatory address or PAN details.
• Initiate punitive action under Paragraph 16A of the Election Symbols (Reservation and Allotment) Order, 1968, including suspension or withdrawal of party symbols for non-compliance.

4. Strengthening Party Audits and Compliance

• It recommends that political parties’ accounts be audited by independent auditors appointed by the ECI, not by their own empanelled accountants.
• It seeks mechanisms to ensure the timely submission of contribution reports and audit certificates.

Current Rules Governing Political Donations in India

1. Representation of the People Act (RPA), 1951

• Section 29B allows political parties to receive voluntary contributions from individuals and companies (excluding government companies and foreign sources).

2. Companies Act, 2013

• Eligible companies can donate to political parties up to 7.5% of the average net profits of the past 3 years.
• Government companies and those less than 3 years old are barred from donating.

3. Income Tax Act, 1961

• Donations to political parties or electoral trusts are eligible for tax deductions under Sections 80GGB and 80GGC.

4. Foreign Contribution (Regulation) Act (FCRA), 2010

• Foreign donations to political parties are restricted.
• However, amendments redefined “foreign source” to exclude Indian companies with foreign investment, allowing such entities to donate if they follow FEMA limits.

5. Electoral Trusts Scheme (2013)

• Electoral Trusts act as intermediaries to collect and distribute political donations.
• Must distribute 95% of receipts to registered political parties.
• Cannot accept cash donations, ensuring a clean trail.

Why Transparency in Political Funding Is Essential

1. Enables Informed Electoral Choice

• The Supreme Court (2002, 2024) has affirmed that voters have a fundamental RTI regarding political financing.
• Knowledge of who funds parties helps voters understand likely policy influence.

2. Strengthens Institutional Integrity

• Transparent funding breaks the nexus of quid pro quo between corporations and political actors.
• Reduces policy distortions in the allocation of natural resources, taxation, and regulation.

3. Protects National Sovereignty

• Anonymous funding channels are vulnerable to foreign influence, especially via shell companies.
• Such influence can affect defence, foreign policy, and internal security.

4. Prevents Market Distortions: Hidden corporate financing promotes crony capitalism, undermines market fairness, and discourages innovation.

5. Upholds Egalitarian Democracy: Without transparency, political power shifts towards wealthy individuals and corporations, weakening the democratic equality promised in the Preamble.

6. Aligns India with Global Best Practices: Countries like the United States (since 1910) and many European democracies mandate disclosure of political contributions.

What Reforms Are Required to Improve Transparency?

1. Ban Anonymous Cash Donations Entirely

• Amend Section 13A(d) to remove the ₹2,000 cash limit.
• Mandate 100% digital donations to create an audit trail.
• Consider lowering the limit further as an interim step.

2. Count All Candidate-Related Expenditure

• Implement the 170th Law Commission Report recommendation to delete Explanation 1 of Section 77 of the RPA, 1951.
• This would prevent parties or “friends” from spending unlimited amounts on candidates outside official limits.

3. Strengthen Institutional Enforcement

• Empower ECI to:
  • Deregister non-compliant parties.
  • Appoint independent auditors.
  • Issue penalties for the delayed filing of donation reports.
• Strengthen oversight by RBI and SEBI over corporate donations and suspicious transactions.

4. Enable Real-Time Transparency

• Mandate political parties to upload:
  • Donor name
  • PAN
  • Address
  • Amount
    on a single ECI-hosted public portal.
• Integrate the system with the Income Tax Department for automatic verification.

5. Long-Term Structural Reforms

• Introduce partial state funding of elections (e.g., free airtime, limited campaign reimbursements), as recommended by:
  • Indrajit Gupta Committee (1998)
  • Law Commission (1999)
• Link state funding to stringent transparency requirements.
• Introduce a national expenditure limit with robust real-time monitoring.

Conclusion

The Supreme Court’s decision to examine the legality of anonymous cash donations marks a critical moment for India’s democratic integrity.

Eliminating opaque funding channels, strengthening regulatory oversight, empowering the Election Commission, and establishing real-time disclosure norms are essential steps toward a cleaner political ecosystem.

Transparent political funding not only enhances voter rights and institutional probity but also protects India from policy capture, foreign influence, and corporate distortions. Strengthening transparency is thus central to sustaining an egalitarian and accountable democracy.

Frequently Asked Questions (FAQs)

1. What are anonymous political donations?

Anonymous political donations are contributions made to political parties without disclosing the donor’s identity. In India, donations below a certain threshold do not require disclosure.

2. What is the current disclosure threshold for political donations?

Political parties do not need to disclose the name, address, or PAN of donors who contribute below ₹20,000 in a financial year. These appear as “unlisted” or “small donations.”

5. Are anonymous cash donations allowed?

Yes, but cash donations above ₹2,000 are prohibited. Parties can still receive cash contributions below ₹2,000 without disclosing the donor.