Election Funding

Election Funding


1969 In 1969, PM Indira Gandhi government amended the Companies Act and imposed a total ban on corporate funding given to political parties.

Reason :
1. Official Reason : To remove political corruption
2. Real Reason : Cut wings of Syndicate within Congress which had good relations with Business houses + Increasing Corporate Support to Right wing Swatantra Party and Jana Sangha

Result : This eliminated the most important  source of election funds to parties without providing an alternative financing mechanism (such as state funding) &   effectively pushed campaign finance underground . 
1985 Rajiv Gandhi Government legalised Corporate Funding recognising previous mistake
But Corporates still prefers to give fund under the table in order to avoid retribution from other party 

Problem 1 : Transparency 

  • Loophole in Representation of People Act :  All the income of Political Parties are tax exempted provided , they file return of income to IT Department and they tell the source  of donations above 20,000 to Election Commission of India annually . Most political parties show donations of less than 20,000 from individuals as their main source  .
  • Data to corroborate this
    • According to Association for Democratic Reforms (ADR) 
      • 69% of Funding of parties is from  undisclosed sources
      • In Regional parties , Undisclosed Funding is even more .
        1. Samajvadi Party =  94%
        2. Shiromani Akali Dal = 86%
  • Despite provisions under section 29 of Representation of People Act, 1951, parties do not submit their annual audit reports to Election Commission of India
  • Parties are  also  out of the ambit of Right to Information act.

Problem 2 : Issue on spending in Elections 

  • Capped Expenditure is for period starting from  EC notification , whereas parties actually start spending money on campaigns much before that.
  • There is no ceiling on party election expenditure — only candidates’ expenses are capped

Ceiling on election expenditure

(From 2014) Lok Sabha Assembly
Bigger States ₹70 Lakh ₹28Lakh

Problem 3: Problem with IT ACT 1961:

  • Section 13A of IT act 1961 provide tax exemption to Political Parties for income from house property, voluntary contribution, capital gains and other sources.  Case may occur where Political Parties may be formed only for the sake of avoiding income tax for the property

Remedies  wrt Funding of Political Parties

  • Bring Political Parties under Right to Information
  • Increase number of days for campaigning . This was done in Britain and is successful
  • State FinancingIndrajit Gupta Committee, 255th Law Commission Report  & 2nd ARC Report  has also favoured this .  (for more on State Funding, Click here)
  • Limit on Total Undisclosed Funding that parties can accept : Law Commission  and Election Commission favoured this . Undisclosed money  should be 20 Crore or 20% of total funding of party (whichever is less) .

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