Experts were intrigued by the new Income Tax Bill 2025 for retaining provisions related to electoral bonds, which the Supreme Court rendered unconstitutional last year. They said it could be because the government intends to bring them back in some other form.
Electoral bonds are mentioned in Schedule VIII of the new Income Tax Bill, which deals with "Income not to be included in the total income of the political parties and electoral trusts".
On February 15 last year, the Supreme Court declared the scheme "unconstitutional" because it "violated" both "right to freedom of speech and expression" and the "right to information."
Under the existing Income Tax Act, of 1961, many political parties were exempt from paying taxes on donations received from companies and individuals. The government has introduced a new Income Tax Bill to replace the 64-year-old Income Tax Act. The 622-page Bill is a simplified version of the existing Act which has become complicated over the years due to more than 4,000 amendments.
About the electoral bond-related provisions in the new Income Tax Bill 2025, AMRG & Associates Senior Partner Rajat Mohan said: "The mentioning of the electoral bond provisions in the new Income Tax Bill could be because of a legislative oversight, or a deliberate move to keep the door open for a modified version of the scheme in the future".
He also said "While the Supreme Court had strong and justified grounds for striking down the scheme, the concerns it highlighted could be addressed through dialogue and expert consultations. The government still retains the legislative authority to reintroduce a revised political donation framework, which aligns with constitutional principles and ensures transparency in electoral funding".
Shardul Amarchand Mangaldas and Co-Partner Rohit Garg said the changes in the new Income Tax Bill were merely structural. There were no major changes in the substantive provisions and the charging sections. Every provision which was not rendered non-essential has been carried forward into the new Act.
Garg also added that "while the SC has ordered SBI to stop issuing electoral bonds, amendments have to be made under the relevant laws to reflect the judgment. If ever in the future, electoral bonds are re-issued, they will be allowed as a deduction. However, the question regarding details of the donors being made public will have to be addressed under the relevant Acts, as the Income Tax Act merely deals with the taxability aspect".
SBI has issued electoral bonds worth Rs 16,518 crore in 30 tranches since the inception of the scheme in 2018. As per Schedule VIII, a political party has to meet six conditions for claiming tax exemptions on voluntary contributions received by them.
One of the conditions states that "a political party must not receive any donation exceeding Rs 2,000 except through specific banking methods. These include an account payee cheque, an account payee bank draft, electronic transfers through a bank, or any other approved electronic payment method as prescribed by electoral bond".
Schedule VIII defines an electoral bond as "a bond referred to in the explanation to sub-section (3) of section 31 of the Reserve Bank of India Act, 1934."
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