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Published on:

April 23, 2026

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Govt. Schemes

Electoral Bonds Scheme: How It Works in India

In India, the way political parties get their funding really matters for the functioning of democracy. Without it, parties couldn't really run campaigns or anything. But for elections to stay fair, all that money going to parties has to be out in the open and recorded properly. Back in the day, so much of it was just cash donations, which always made people worry about black money sneaking in. There was no real way to track where it came from; there is a lack of transparency all over the place. To fix those problems, the government came up with the Electoral Bonds Scheme around 2018. The idea was to push donations through banks, make them more official and easier to follow. The scheme gained immense popularity, but at the same time, it created debates regarding the transparency of funds.

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Introduction to the Electoral Bonds Scheme

The government introduced the Electoral Bonds Scheme under the Finance Bill 2017. The scheme was finally implemented in 2018. Electoral bonds get issued under this scheme; these are instruments people use to donate money to political parties

What are Electoral Bonds?

Electoral bonds are financial instruments used to donate money to political parties in India through a banking system while keeping the donor’s identity confidential. They are a major source of funds for running electoral campaigns.

These are similar to bearer bonds or promissory notes, where the bank issues the bonds and then pays out to the political party that holds them. Since they are bearer instruments, nothing about ownership gets written down. They function a lot like banknotes, payable to whoever holds them, without interest, and on demand. The most interesting fact about the scheme is that one can buy these bonds either digitally or by using a demand draft or cheque. Moreover, the owner's name is anonymous.

Features of the Scheme

Anonymous donation

Bond purchased through the State Bank of India, promoting cashless transactions

Available in amounts ranging from ₹1,000 to ₹1 crore

Limited validity, bonds must be encashed within 15 days of issuance

Transparency in donations, only registered political parties meeting specific criteria can receive these bonds

Tax benefits to donors, donations made through bonds are eligible for tax deductions under the tax laws

How does the Electoral Bonds Scheme work?

Here is the step-by-step guide on how the Electoral Bonds Scheme works in India:

Individuals or organisations buy electoral bonds from authorised branches of the State Bank of India by completing the required KYC formalities. The main document includes the application form, a copy of the citizenship proof, and the required KYC documents. In case payment is made through any other bank, the buyer needs to submit the proforma declaring the source of funds on the letterhead of the branch, signed and stamped by the branch manager.

	Individual	Organisation
Documents required for Citizenship Proof	Passport, Voter ID card, Letter from the national population register for the states of Assam, J&K and Meghalaya	Certificate of incorporation, partnership deed or trust deed, or any other document showing establishment in India
KYC documents required	Adhaar card, PAN card or Form 60 (Income Tax rules, 1962, passport, driving license, Voter ID card, Job card issued by NREGA, Letter issued by the national population	Registration certificate, Memorandum of Association and Articles of Association, PAN of the company, Aadhaar number and PAN or Form 60, Declaration of beneficial ownership in a specific format, photographs and self-attested KYC documents of each beneficial owner.

As stated, any Indian citizen or firm can purchase these bonds. The eligible buyers for these bonds include:

A Hindu Undivided Family

A company or firm

An Association of Persons (AOP) or a Body of Individuals (BOI), whether incorporated or not

Every other artificial juridical person or any office, agency or branch owned or controlled by an artificial judicial person

After purchase, the buyer donates the electoral bond to a political party of their choice.

Eligible political parties deposit the bonds into their bank accounts and redeem them within 15 days to receive the funds. The criteria that political parties should meet to receive donations are:

Must be officially registered under the Representation of the People Act, 1951

Must have secured at least 1% of the total votes in the most recent elections

Key advantages

For Donors

Eligible for tax deductions on contributions

Donor identity remains confidential to the public

Risk-free transactions, as done through SBI

For Political Parties

Received donations through formal and secure channels, via verified bank routes

Creates low dependence on cash funds

Easy redemption of bonds within a short period

For Government

Shift from cash to digital transactions in India

Encouraged transparency, as transactions are recorded through the banking channel

Better control of funds as donations are routed through authorised institutions

Major Drawbacks

For Donors

The public could not know who donated to political parties, leading to reduced oversight and accountability in political funding

For Political Parties

May lead to bias as donors might favour ruling parties due to influence concerns.

The government could potentially access donor details through banking channels, while the public could not.

For Government

Companies could donate any amount of money, which increased their influence on political parties

Even loss-making or inactive companies could donate, raising concerns about misuse

Impact of the Electoral Bonds Scheme on Indian Democracy

The Electoral Bonds Scheme was introduced in India to change how political donations worked, moving them from just cash straight to banks through the State Bank of India. It set up an official process for people and companies to give money to registered parties, and all these funds got logged in the banking records.

But there are a few areas where it lacks. Voters can donate any amount of money; thus, it reduces openness in funding. And companies could give as much as they wanted, no limits at all. So big corporations throwing in huge amounts might sway politics in ways that are not fair.

The Electoral Bonds Scheme in India was struck down by the Supreme Court back in 2024. They said it went against the right to information, mostly because there was no real transparency in how things worked. This decision reinforced the need for openness in political funding and highlighted the importance of balancing donor privacy with public accountability in a democracy.

FAQs

How to encash electoral bonds in India?

State Bank of India gets to issue and encash the electoral Bonds. Eligible political parties are the only ones who can encash these bonds, and it has to go through a bank account with the authorised bank branch.

Can Electoral Bonds be purchased multiple times by the same applicant?

People or companies can buy as many electoral bonds as they want; there is no limit in number of bonds. Each bond is treated as a fresh purchase, and the buyer needs to submit all KYC documents again.