Public Remains Excluded from Political Funding Data

Income Tax Authorities to Collect Political Donation Details

Newsreel Asia Insight #135
Feb. 18, 2024

Following the Supreme Court’s declaration of the electoral bond scheme as unconstitutional, the central government has instituted a new mechanism for the comprehensive collection of data on all political donations, according to a media report. This system will enable the central government to gain insights into the financial landscapes of opposition parties while maintaining the confidentiality of this data from the public eye.

The Supreme Court recently deemed the electoral bond scheme – financial instruments that individuals or corporations can purchase from authorised banks and give to political parties as donations with anonymity – unconstitutional, prompting the government to find an alternative method to monitor political donations.

The court determined that the scheme infringed upon the citizens’ right to be informed of the financial sources of political parties. It mandated the complete revelation of all information regarding contributors, the parties receiving contributions and the amounts donated, according to The Hindu.

The electoral bond scheme eliminated important protective measures that were once in place. Previously, corporate donations were capped at 7.5% of the net profits earned over the previous three years, and companies were required to have been operational for a minimum of three years before they could contribute. The electoral bonds opened the door for the potential creation of shell companies solely for funnelling money into politics and enabling essentially limitless corporate contributions, as noted by Live Law.

Now, the Central Board of Direct Taxes (CBDT), under the supervision of the Finance Ministry, has introduced new forms for income tax returns, to be used starting with the current financial year, that require detailed reporting of political donations by individuals, corporate houses and other organisations, as reported by The Reporters’ Collective. This includes the amount donated, the mode of donation (cash, cheque or other), and transaction details, but not the recipient party.

The Income Tax department can match transaction details with other databases and share this data with law enforcement agencies under the Finance Ministry, such as the Enforcement Directorate and the Financial Intelligence Unit.

The government’s move has several potential impacts on the political landscape and democracy in India.

While the government’s ability to collect detailed data on political donations could potentially increase transparency, the fact that this information is not made public raises concerns about the government’s surveillance capabilities and the potential misuse of this data. There is also a risk that the government could use this detailed financial data to target political opponents, thereby impacting the democratic principle of fair play.

The ruling party could potentially use the detailed data on political donations to its advantage, by understanding the financial landscapes of opposition parties. This could lead to an uneven playing field, where the ruling party has more information and potentially more resources.

Further, knowing that their donation details, including amounts and methods, are reported to the government might deter individuals and organisations from donating to opposition parties or causes, fearing repercussions. This could lead to decreased political engagement and voter participation, weakening the democratic process.

In democracies, it’s crucial for citizens to know where political funding comes from, as it can influence policy decisions and governance. Without this information, the public cannot fully assess the motivations behind political actions or hold parties and candidates accountable for their financial ties.

The overall integrity of the democratic process is at stake when the government has unchecked control over political donation data. Democracy thrives on checks and balances, transparency and equal playing fields for all political actors. Any deviation from these principles can erode public trust in the electoral system and governance.