Political funding

1. Meaning and constitutional importance

Political funding includes membership fees, individual donations, corporate contributions, collections through electoral trusts and other lawful income used by parties. Candidates also mobilise resources for their own campaigns. Funding pays for communication, travel, personnel, offices and voter outreach. It is therefore necessary for competitive elections, but concentrated or concealed funding can create unequal political access and influence public decisions.

The Constitution does not prescribe a complete political-finance code. Instead, regulation draws on democratic equality, freedom of expression and the constitutional framework for elections. Article 19(1)(a) is particularly important because meaningful voting requires information about political choices and their financial supporters. Article 324 establishes the Election Commission’s supervisory authority, while Article 327 authorises Parliament to legislate on elections.

Free and fair elections form part of India’s constitutional democratic framework. Large financial inequalities can undermine this principle even where every citizen formally has one vote. Donations are not inherently corrupt, however: citizens and businesses may legitimately support political ideas. Regulation must distinguish lawful participation from bribery, concealed influence and quid pro quo arrangements.

• Principal concerns include donor secrecy, dependence on large contributors, opaque cash receipts, misuse of public resources and unequal campaign capacity.
• For examination purposes, distinguish a donation limit, a disclosure threshold, a tax-exemption condition and a campaign-expenditure ceiling.

2. Legal channels, disclosure and taxation

Section 29B of the Representation of the People Act, 1951 permits registered political parties to accept voluntary contributions from persons and companies other than government companies, subject to restrictions on foreign contributions. Section 29C requires the party treasurer or authorised person to prepare a report of contributions exceeding ₹20,000 from a person during a financial year, including covered company contributions. The report is submitted to the Election Commission before the prescribed income-tax return deadline; non-compliance affects tax relief.

Section 13A of the Income-tax Act, 1961 provides conditional exemption for specified income of political parties. Conditions include maintaining accounts, keeping prescribed donor records, auditing accounts and fulfilling applicable reporting and return-filing requirements. A donation exceeding ₹2,000 must be received through prescribed non-cash methods for the party to retain the exemption. Splitting receipts into small cash entries can weaken transparency, making verification of accounts important.

Sections 80GGB and 80GGC provide deductions for eligible contributions by Indian companies and other eligible taxpayers respectively, subject to their conditions. Cash contributions do not qualify under these provisions. These donor deductions are distinct from the recipient party’s exemption under Section 13A.

Electoral trusts operate under a framework introduced in 2013. Approved trusts collect contributions and distribute funds to registered political parties. They must distribute at least 95% of the aggregate of contributions received during the year and the brought-forward surplus. Reporting requirements provide information about contributors and recipient parties, although routing funds through a trust does not necessarily identify which donor financed each particular distribution.

• Foreign-source restrictions are governed by the Foreign Contribution (Regulation) Act, 2010; the statutory definition, including its treatment of foreign investment, matters.
• The ₹20,000 disclosure threshold does not authorise false accounting or deliberate concealment.

3. Corporate donations and electoral bonds

Section 182 of the Companies Act, 2013 regulates corporate political contributions. Government companies and companies in existence for less than three financial years are prohibited from contributing. Before the Finance Act, 2017 changes, eligible companies faced a ceiling of 7.5% of average net profits during the preceding three financial years and had to disclose recipient parties. Board authorisation was also required.

The Finance Act, 2017 removed the percentage ceiling and party-specific corporate disclosure requirements. It also introduced statutory changes supporting electoral bonds. Under the Electoral Bond Scheme, 2018, eligible purchasers bought bonds from designated State Bank of India branches. Eligible parties could encash them through designated accounts within fifteen days. Eligibility required registration under Section 29A and at least 1% of votes in the last Lok Sabha or relevant State Legislative Assembly election.

Although purchases required banking and know-your-customer procedures, donor identities were not publicly disclosed through the scheme. Its defenders argued that it shifted donations away from cash and protected donors against retaliation. Critics highlighted reduced voter information, possible asymmetry between government access and public access to donor details, and the risk of unlimited corporate influence.

In Association for Democratic Reforms v. Union of India, decided on 15 February 2024, a five-judge Constitution Bench unanimously struck down the scheme and associated amendments. It held that non-disclosure violated voters’ right to information under Article 19(1)(a). Unlimited corporate contributions were also found manifestly arbitrary under Article 14. The Court rejected the idea that curbing black money justified this degree of secrecy and directed disclosure of bond purchase and redemption information. The earlier corporate ceiling and recipient-disclosure framework consequently became applicable again.

• Electoral bonds are no longer a valid funding channel following the judgment.
• The judgment did not prohibit all corporate donations or establish that every donation involves corruption.

4. Candidate spending and enforcement

Section 77 of the Representation of the People Act, 1951 requires candidates to maintain a separate and correct account of election expenditure incurred or authorised by them or their election agents between nomination and declaration of results. Rule 90 of the Conduct of Elections Rules, 1961 sets expenditure ceilings. The ceilings revised in 2022 are ₹95 lakh or ₹75 lakh for Lok Sabha constituencies and ₹40 lakh or ₹28 lakh for Assembly constituencies, depending on the State or Union Territory.

Under Section 78, the candidate must lodge the expenditure account with the district election officer within thirty days of the election of the returned candidate. Section 10A allows the Election Commission, where statutory conditions are satisfied, to disqualify a person for three years for failure to lodge the account in the prescribed time and manner without good reason or justification.

Party spending and candidate spending are not identical. India has no equivalent general statutory ceiling on a political party’s overall election expenditure. Nevertheless, expenditure attributable to a candidate cannot automatically escape accounting merely because another person paid it. The law provides specific exclusions, including qualifying travel expenditure of notified party leaders. Expenditure observers, monitoring teams and shadow observation registers help detect discrepancies; paid news and concealed digital advertising complicate enforcement.

• Donation disclosure concerns the source of money; expenditure monitoring concerns its use.
• Election bribery is prohibited conduct, not merely an accounting irregularity.

5. Reform debate and examination perspective

The Indrajit Gupta Committee on State Funding of Elections, 1998 supported limited state assistance, principally in kind, subject to conditions. The Law Commission’s 170th Report, 1999 and 255th Report, 2015 examined political finance alongside wider electoral reforms. State support may reduce dependence on wealthy donors, but cannot independently eliminate illegal private financing or guarantee internal party accountability.

A workable reform package combines timely machine-readable disclosures, credible audits, enforcement against false reporting and proportionate donor privacy. Disclosure of large contributions serves public accountability, while publication of every small donor’s identity may discourage political participation. Regulation must also address third-party campaigning and digital advertisements without imposing arbitrary barriers on new parties.

For Prelims, prioritise statutory sections, institutional responsibilities and the distinction between electoral bonds and electoral trusts. For analytical answers, assess transparency, political equality and enforceability together. Neither banking channels alone nor disclosure alone guarantee clean elections: usable public information must be accompanied by investigation, sanctions and fair enforcement.

• India already provides some indirect public assistance, such as allocated broadcast time on public broadcasters for eligible recognised parties.
• Full public funding of all election expenditure is not India’s existing system.

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