Harmonising efforts to curb flow of cash and unaccounted money into the political system, Parliament on Wednesday approved the government’s proposal to relax conditions for contributions made by corporate entities. This will also facilitate the broadening of political funding channels.
Besides removing the cap for contributions, companies will also be allowed to keep the names of political parties confidential in their accounts. The move was proposed as part of the amendments to the Finance Bill, 2017, by the government.
The Bill was passed by the Lok Sabha on Wednesday. This effectively means that Parliament has passed the Bill. The Rajya Sabha does not have any power to reject a money Bill.
Till now, corporate entities could contribute only 7.5 per cent of average net profit in the past three financial years. This cap has been removed, allowing free flow of funds to political parties. For this, provisions of the Companies Act will be amended as part of the Finance Bill.
Besides, another provision in the Companies Act would be amended to do away with the current requirement to disclose the names of beneficiary political parties in companies’ profit and loss statements. The amount of donation, however, still needs to be disclosed.
“The move is aimed to curb unaccounted money flowing into the political system. It will enable companies to make donations without any limitations, like it is in case of developed countries. With this, the government is encouraging the flow of accounted money in the political system,” said Neeru Ahuja, partner, Deloitte Haskins and Sells.
Rahul Garg, leader — direct taxes, PwC, said it was a good move as it encouraged accounted donations. “The attempt is to move away from cash. All efforts, including electoral bonds and curbing cash donations over Rs 2,000, are a move in that direction,” he said.
According to the Companies Act, the board of a company has to approve the contribution to be made through a resolution.
The expenditure incurred, directly or indirectly, by a company in publication, a souvenir, journal, or a pamphlet on behalf of a political party would be construed as a contribution.
Flouting the Companies Act provisions attracts a fine of less than five times the amount contributed and every officer in default is liable to up to six months’ imprisonment and a fine of five times of the amount contributed.
Union Finance Minister Arun Jaitley, had in the Budget, announced a 90 per cent cut in the limit for cash donations to Rs 2,000 from Rs 20,000 earlier. Political parties would now have to disclose the identity of the donor in case of any donation above Rs 2,000 in cash. The parties were so far allowed to receive anonymous donations up to Rs 20,000.
The move was in response to the Election Commission asking the government to bring down this limit of anonymous donation.
Through the Finance Bill, the government also announced the concept of electoral bonds, where a donor could purchase bonds from authorised banks against cheque and digital payments only. These will be redeemable only in the designated account of a registered political party.