SC to Re-Examine Anonymous Political Donations & Funding Loopholes

Why in the News ?

The Supreme Court has agreed to review a petition challenging the rule that allows political parties to accept anonymous cash donations below ₹2,000. Petitioners argue that this provision enables opaque and untraceable political funding, undermining transparency and citizens’ right to information.

What Concern Has the Petition Highlighted ?

Total Ban on Cash Donations

• The plea seeks to abolish cash donations permitted under Section 13A(d) of the Income Tax Act, 1961, which currently allows contributions below ₹2,000 without donor disclosure.
• It calls for complete transparency by mandating full donor identification.

Violation of Fundamental Rights

• Section 13A(d) is claimed to violate Article 19(1)(a) by denying citizens the Right to Information on political funding—critical for informed voting.

Directions Sought for Oversight of Form 24A

• Requests the Supreme Court to direct the Election Commission of India (ECI) to strictly scrutinize Form 24A, ensuring parties disclose contributor details such as address and PAN.
• Also seeks action under Paragraph 16A of the Election Symbols Order, 1968, including suspension or withdrawal of party symbols for non-compliance.

Suggested Reforms

• Independent auditors appointed by the ECI to audit party accounts.
• Stronger mechanisms for timely filing of contribution reports and audit statements.

What Rules Govern Political Donations in India ?

Representation of the People Act (RPA), 1951

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

Companies Act, 2013

• Companies older than three years can donate up to 7.5% of their average net profits from the last three years.

Income Tax Act, 1961

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

Foreign Contributions Regulation Act (FCRA), 2010

• Foreign donations are generally banned.
• But amendments allow Indian companies with foreign shareholding beyond 50% to donate, subject to FEMA sectoral caps.

Electoral Trusts Scheme, 2013

• Trusts can collect donations and distribute 95% of funds to political parties.
• Cash donations are prohibited.

Why Transparency in Political Funding is Essential?

Informed Political Choice

• Voters must know who funds political parties.
• The SC (2024) struck down the Electoral Bond Scheme for violating RTI under Article 19(1)(a).

Institutional Probity

• Transparency reduces quid pro quo, checks corruption, and ensures unbiased policy-making.

National Security

• Anonymous donations can enable foreign influence, affecting defence procurement and strategic policymaking.

Preventing Market Distortion

• Hidden corporate funding fuels crony capitalism, harming economic fairness and competition.

Preserving Egalitarian Democracy

• Opaque funding risks creating a plutocracy, undermining equality in political participation.

Aligning with Global Standards

• Many democracies—including the U.S. since 1910—mandate transparent reporting of political contributions.

What Reforms are Needed for Transparent Political Funding ?

1. End Anonymous Cash Donations

• Amend Section 13A(d) by removing or reducing the ₹2,000 cash limit.
• Shift fully to digital transactions for a verifiable audit trail.

2. Enforce Transparent Accounting

• Implement recommendations of the 170th Law Commission Report, including removal of Section 77 Explanation 1 (RPA) to ensure all expenditure is accounted for.

3. Strengthen Institutional Enforcement

• Empower the ECI to de-register non-compliant parties.
• Independent auditors should assess party accounts.
• RBI and SEBI must strengthen oversight of corporate political donations.

4. Real-Time Disclosure Mechanisms

• Political parties must upload donor details on a central ECI portal.
• Integrate with the Income Tax Department to verify donations and detect irregularities automatically.

5. Systemic & Long-Term Reforms

• Consider partial state funding (e.g., public airtime, limited campaign resources) as recommended by:
  • Indrajit Gupta Committee (1998)
  • Law Commission Report (1999)
• Introduce national expenditure limits and real-time monitoring.