Editor's Note: A nation’s legal system is integral to how its citizens look upon issues that concern the country in general and their individual lives in particular. Despite having the world’s longest Constitution — not to mention, one that has gone through numerous amendments and the many directives by the Supreme Court that have secured the stature of de facto law, the Indian law books have struggled to evolve at a pace commensurate with the rapid changes society has undergone. As the load of being archaic becomes heavier on our law system, Firstpost introduces a 10-part series titled 'Letter of the Law' to push forward the debate on legal practices and the law itself. The series will explore a variety of aspects pertaining to Indian law through opinion and analyses.


This article compares the law and the realities with respect to all three aspects.

First, with regard to contributions, there is no legal limit to the amount of money a single political party or candidate can receive. Any voluntary contribution by a Indian person or company (except a Government company) can be accepted. Foreign contributions are more restricted, although amendments in 2016 to the Foreign Contributions (Regulation) Act have partly relaxed the law. Now, contributions to political parties by companies with greater than 50 percent shareholding by a foreign entity is permitted. This has been criticised, coming as it did directly after a challenge filed in the Delhi High Court pointed out that political parties were violating the erstwhile rule. The legal changes undid the finding of the Delhi High Court that both the BJP and the INC had violated the law, as it stood then.

A special aspect of the law on political donations is the rules that govern corporate contributions. This has seen a lot of changes over the years. They were completely banned between 1969 and 1985. Restrictions brought in subsequently mandated that aggregate political contributions made by a company in a year could not exceed 7.5 percent of its average net profits for the last three years. A company had to be in existence for three years to be eligible to make political contributions. Contributions had to be authorised by a resolution of the Board of Directors. Disclosure of amounts contributed had to be made in a company’s annual reports, along with the name of the political party contributed to.

Candidates routinely declare that they have spent amounts far below the legal limit. Yet, it is common knowledge, and acknowledged across every public forum in the country, that election spending has gone out of hand.


These restrictions were largely undone through changes introduced through the Finance Act, which is supposed to only implement the Union Budget. These, again, were met with severe criticism, both on the manner in which it was introduced, and on the content. The Finance Act is a money bill, which means that it does not need to be passed by the Rajya Sabha. This is allowed under the Constitution for matters relating to tax, or any income or expenditure of the Government. The Finance Act, 2017, however, did not limit itself to these topics, but went on to make changes to the law regarding government tribunals, usage of Aadhaar, and election laws. Specifically with respect to corporate contributions, it removed completely the 7.5 percent limitation on the total amount a company could contribute, and also removed the disclosure requirement of the contribution in the annual report of the company.

In 2015-16, political parties reported a total of around Rs 77 crores as donations from corporate entities. If one were to go purely by the declarations filed, it would seem that this is a relatively small percentage of the total money being channelled to political parties. The law has tried to create incentives for companies to declare their donations, by making such donations exempt from tax. However, the lure of anonymous donations is probably greater, as it carries no fear of reprisal if a donation is made to a losing side. The recent changes to the law on corporate donations seem to reflect this – the removal of disclosure requirements, coupled with the elimination of the 7.5 percent cap could only have been introduced keeping corporate and political party interests, rather than general public interest, in mind.

With respect to disclosures, all political parties are supposed to report the source of any contribution above Rs 20,000 made that year. In addition, every political party has to maintain books of accounts that enable an Income Tax Assessing Officer to deduce its income. These reports have to be filed by a political party in order for it to be exempt from income tax. According to analysis by the Association for Democratic Reforms, in 2015-16, the combined income declared by the six national political parties was Rs 1,869.11 crores. Most of this was reported by the Indian National Congress (INC) and the Bharatiya Janata Party which together accounted for over 80 percent of this money. The goal of transparency with respect to the sources of income for political parties has not been achieved, however. Over half the income of political parties in 2014-15 was characterised as coming through anonymous donations of under Rs 20,000, the details of which need not be disclosed under the law.

The Finance Act, 2017 purportedly made anonymous donations more difficult, by mandating that no contribution above Rs 2000 can be made in cash. However, it did not reduce the limit for anonymous donations which still remains at Rs 20,000. This means, for example, that while a donation of Rs 5000 can only be made by bank transfer of cheque, but the political party is under no obligation to make the details of the donor public. The objective of transparency and public scrutiny, therefore is far from achieved.

It should also be noted that declared cash donations were already on a downturn after a 2014 notification by the Election Commission of India disallowed tax deductions on donations made in cash. In 2014-15, according to the Association for Democratic Reforms, less than 2 percent of the donations declared by political parties were in cash. The legal changes on this front, therefore, are little more than cosmetic.

While the rules discussed above relate to the income and reporting of political parties, there is also a spending limit on each individual candidate’s spend, from the date of filing of nominations to the date of polling. This limit is currently between Rs 20-28 lakh for State Assembly and Rs 54-70 lakhs for Parliamentary elections. The limit includes any spending done by a political party, or any other third party, on behalf of a candidate. However, there is no spending limit for a political party for its overall programme. So, for example, if a political party pays for the creating of a stage for a candidate to hold a rally, that is counted within the candidate’s expenses. However, if the party brings out advertisements in the national newspaper talking about their campaign promises, it will not be counted under any spending limit.

In the letter of the law, these spending limits are meant to be taken seriously – exceeding the limits is considered a ‘corrupt practice’ that can disqualify a candidate for up to six years. Candidates routinely declare that they have spent amounts far below the legal limit. Yet, it is common knowledge, and acknowledged across every public forum in the country, that election spending has gone out of hand. It is clear to even the most casual observer of the 2014 Lok Sabha elections that the amount of money involved in electoral politics vastly outstrips the declared incomes of political parties. Estimates showed that the actual spend in these elections has been between Rs 18,000 and Rs 30,000 crore. In each constituency, while the legal limit was Rs 70 lakh, instead, Rs 5-7 crore may have been spent by each candidate.


With the belief that transparency will assist in reducing the amount of illegal money in elections, civil society organisations have, for years, tried to bring political parties under the ambit of the Right to Information (RTI) Act.

Milan Vaishnav, in his book When Crime Pays, gives an account of the spend by an individual candidate that goes 30-40 times over the legal limit. Costs typically include payments to media houses for both advertisements and ‘paid media’ stories, payments to campaign workers and direct cash, gifts, and liquor payments to voters. Needless to say, nearly all of this is against the law. As far as the official headings of expenses for political parties is concerned, it usually falls under such generic categories as “Election Expenditure”, “Travelling”, and “Rally Expenses”.

Since the total declared income of the six national parties in a year is usually less than Rs 1000 crore, it is inevitable that most of the money is both obtained and spent illegally. This has been publicly admitted on several occasions, with the former prime minister Atal Behari Vajpayee once declaring before a Parliamentary Committee that Indian politicians start their legislative careers with a lie – the false pending returns they submit. The National Commission to Review the Working of the Constitution has also observed “The limits of expenditure prescribed are meaningless and almost never adhered to. As a result, it becomes difficult for the good and the honest to enter legislatures. It also creates a high degree of compulsion for corruption in the political arena.”

This is a pattern than can be seen across all rules and regulations to do with electoral finance. During elections, the newspapers routinely report on the Election Commission having seized huge amounts of cash, liquor and guns. There is no Parliamentary law that explicitly allows this – rather, these are part of a set of instructions issued by the Election Commission authorising officers to seize cash above Rs 50,000, and drugs, liquor etc. above Rs 10,000, on suspicion of it being used for bribery during elections. After elections are over, however, the Election Commission has to hold hearings and return the money if it was found to be carried for a legitimate cause. Since the Income Tax department is supposed to be apprised of large amounts, it is no wonder that owners rarely claim such seized cash.

While the Election Commission has been vigilant in monitoring and curbing such activities, elected candidates rarely face any long-term consequences. So far, only a handful of elected representatives have been disqualified by the Election Commission of India on the grounds that their election accounts were incorrect. Investigation and prosecution for the violation of electoral finance laws has not kept pace with the extent to which these laws are flouted.

With the belief that transparency will assist in reducing the amount of illegal money in elections, civil society organisations have, for years, tried to bring political parties under the ambit of the Right to Information (RTI) Act. In 2013, the Chief Information Commission (CIC) directed the six national political parties to subject themselves to RTI – however, this order was largely flouted. Since then, the matter has been kept in ‘abeyance’ by the CIC.

The presence of large sums of unaccounted money has a direct effect on both election outcomes, and future political decision-making. The personal financial assets of a candidate have a direct relation to his chances of winning, and substantial personal finances is typically accompanied by criminal antecedents. Illegal money in elections also has a huge role to play in subsequent corruption among elected representatives. The pernicious effect of vast amounts of illegal money in an election is therefore a very real threat, and the need for reform very evident.

Srijoni Sen is a lawyer and CEO of Nyaaya, which is a free, non-profit resource explaining and documenting all Indian laws.


You can access the rest of the series here.

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