Electoral bonds will allow donors to pay political parties using banks as an intermediary.
In a bid to clean election financing, the government today outlined contours of the new electoral bonds that donors can buy from SBI and said receiving political parties can encash only through a designated bank account.
The electoral bonds, which are being pitched as an alternative to cash donations made to political parties, will be available at specified branches of State Bank of India (SBI) for 10 days each in months of January, April, July and October.
The bonds, which would be valid for 15 days, will not carry the donor's name even though the purchaser would have to fulfil KYC norms at the bank, Finance Minister Arun Jaitley said in the Lok Sabha while announcing the contours of the scheme.
He had first announced the idea of electoral bonds in his Budget 2017-18 speech made on February 1, 2017, to make political funding more transparent.
"The government has now finalised the scheme of electoral bonds. The scheme will be notified today," he said.
Although called a bond, the banking instruments resembling promissory note will not carry any interest. The lender will remain the custodian of the donor's funds until the political parties are paid.
The move is aimed at making political funding more transparent. Currently, almost all of the funding is done by anonymous cash donations. This step follows the audacious move to ban high currency notes in November 2016 in a bid to flush the system of black money.
Electoral bonds will allow donors to pay political parties using banks as an intermediary.
When Congress leader Mallikarjun Kharge asked what purpose the bonds would serve when the name of the donor is not disclosed, Mr Jaitley said bonds would get reflected in the balance sheet of the donors.
"Let me clear misconceptions, if any. I had announced in Budget speech that political funding needs to be cleansed up. A very large part of donation coming to political parties by the donors, quantum and source is not known.... electoral bonds substantially cleanse the system," he said.
Electoral bonds, he said, can be given to registered political party which has secured at least 1 per cent vote in last election.
That party will have to give one bank account to the Election Commission and it will have to be encashed within 15 days, Mr Jaitley said.
"Donors who buy these bonds, their balance sheet will reflect. It will ensure cleaner money coming from donors, cleaner money coming to political party and ensure significant transparency," he said.
The minister said at present, donor, quantum and source of funds is not known.
"The donor will know which party he is depositing money. The political party will file return with the election commission. Now, which donor gave to which political party, that is the only thing which will not be known," he said, adding, "Electoral bonds will ensure clean money and significant transparency against the current system of unclean money".
In the Budget for 2017-18, Mr Jaitley had also announced capping cash donation at Rs 2,000 instead of Rs 20,000 and allowed parties to receive digital donations.
Mr Jaitley said the electoral bond, which will be a bearer instrument, will not carry the name of the payee and can be bought for any value, in multiples of Rs 1,000, Rs 10,000, Rs 1 lakh, Rs 10 lakh or Rs 1 crore.
The bonds with a life of only 15 days, during which it can be used for making donation only to registered political parties, can be encashed only through a designated bank account of the receiver.
The bonds will be available for purchase for 10 days each in the months of January, April, July and October. The window will be for 30 days in the year of general election, he said.
Mr Jaitley said the purchaser, whose name will not appear on the bonds, would have to make KYC (know your customer) disclosures to the SBI.
"A citizen of India or a body incorporated in India will be eligible to purchase the bond," he said.
Only political parties which have secured not less than one per cent of the votes polled in the last general election or an assembly poll would be eligible to receive donations through electoral bonds, Mr Jaitley said.
Later talking to reporters, Mr Jaitley said the 15 days time has been prescribed for the bonds to ensure that they do not become a parallel currency.
"Every political party will file before Election Commission return as to how much money has come through electoral bonds," the minister said.
On why the name of the donor is being kept secret, he said the past experience has shown that once the names are disclosed, there is a tendency to shift to cash donations.
"The present system is unclean money and new system is a substantial amount of transparency if not total," he added.
The idea is to move away from present system, which is cash, Mr Jaitley said.
"This will substantially help a lot of opposition parties because in case a disclosure is made it will always be in favour of ruling party," he said. "People who are expressing apprehension let them suggest better way," Mr Jaitley added.