BQExplains: How Do Electoral Bonds Work?
(Source: BloombergQuint)

BQExplains: How Do Electoral Bonds Work?

The government today finalised the terms of issuance of electoral bonds during the ongoing winter session of Parliament.

These bonds will be interest-free banking instruments like promissory notes that can be encashed by an eligible political party through a designated bank account, Finance Minister Arun Jaitley said in the Lok Sabha today.

The Narendra Modi government mooted the idea of electoral bonds in Budget 2017-18 to make political funding more transparent. The bonds were pitched as an alternative to cash donations made to political parties.

Here’s a quick explainer on how these bonds work, according to a statement issued by the government.

What is an electoral bond?

  • A bearer instrument in the nature of a promissory note
  • An interest-free banking instrument

Who can purchase electoral bonds?

  • A citizen of India or a body incorporated in India.

Where can these bonds be purchased?

  • Select branches of the State Bank Of India

Denominations of electoral bonds

These bonds can be purchased in the denomination of Rs 1000, Rs 10,000, Rs 1 lakh, Rs 10 lakh, Rs 1 crore.

What does the purchaser need to do to buy an electoral bond?

  • Needs to satisfy extant KYC requirement while opening an account.
  • Payment to purchase the bond can be done only through a bank account.
  • The bonds will not carry the name of the payee.

What will be the tenure of the bond?

  • The life of the electoral bonds will be 15 days.

When can the bonds be bought?

  • Available for 10 days each in January, April, July and October
  • Additional 30 days to be specified in the year of Lok Sabha polls

Eligible political party

  • Donations can be made to political parties registered under Section 29A Representation of the Peoples Act, 1951.
  • The party should have secured more than 1 percent of vote share in the previous Lok Sabha or Legislative Assembly polls.

How will the bonds be encashed?

  • The political party will encash the bond through a designated bank account.
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