Corporate donations to political parties

Also called: Section 182 of the Companies Act 2013 · Topic: Electoral Reforms: Money, Criminalisation and Simultaneous Elections · NCERT: Beyond NCERT

Meaning

Corporate donations to political parties are gifts of money that a company makes to a party. Section 182 of the Companies Act 2013 controls them: only a company that is at least three years old and is not a government company may donate. It may give up to 7.5% of its average net profit of the last three years, and it must show the amount and the party's name in its accounts.

This rule matters because company money is one of the biggest sources of party funds. Big donors may expect favours once their party is in power, so voters need to know who is paying whom.

Explanation

How a company may donate (the conditions in s.182)

• Age: the company must be at least three years old.

• A newly created company cannot be used straight away to channel money to a party.

• Who is barred: a government company (a company the government owns or controls) cannot donate.

• How much (the cap): up to 7.5% of its average net profit over the last three financial years.
• "Net profit" is what the company earns after paying its costs.

• The cap stops very large sums from flowing in, measured against what the company actually earns.

• Who decides: the board of directors must approve the donation by a resolution (a formal decision taken at a board meeting).

• Disclosure: the company must show both the amount and the party's name in its profit and loss account (the yearly statement of what the company earned and spent).

The 2017 change and why it was made

• The Finance Act 2017 changed s.182 in two ways:
• it removed the 7.5% cap, so there was no upper limit;

• it removed the duty to name the party in the accounts.

• Why: these changes were made to support electoral bonds, under which a donor's identity was kept hidden from the public.

• Result: company donations became unlimited and harder for voters to trace.

The 2024 judgment

• In Association for Democratic Reforms v. Union of India (15 February 2024), the Supreme Court struck down the 2017 changes to s.182, along with the electoral bond scheme.
• Because the changes were struck down, the original conditions apply again: the 7.5% cap and the duty to name the party.
• The Court rested its reasoning on the voter's right to information (Article 19(1)(a), freedom of speech and expression, which includes the right to know).

How it links to other party-finance rules

• s.29B RPA 1951: a party may take money from any person or company, except a government company or a foreign source. This matches the s.182 bar on government companies.
• s.29C RPA: the party must report every donation above ₹20,000 to the ECI in Form 24A. A company's donation above that amount therefore shows up in the party's report too.
• s.80GGB of the Income-tax Act: a company can deduct (subtract from its taxable income) what it gives to a party. No deduction is allowed for cash donations [3].
• Cash cap: under the Finance Act 2017, a party cannot take more than ₹2,000 in cash from one source. Larger company donations must come by cheque or bank transfer.

In the Constitution and practice

• Where it sits: in ordinary law, not in the Constitution. It is s.182 of the Companies Act 2013, read with s.29B and s.29C of the RPA 1951 and s.80GGB of the Income-tax Act 1961.
• Constitutional link: the 2024 judgment tied donor disclosure to Article 19(1)(a). A voter has a right to know who funds a party.
• Who uses it: company boards, which approve and disclose donations; party treasurers, who report donations to the ECI; and the tax department, which allows the deduction.
• Key instances:
• Finance Act 2017: removed the cap and the duty to name the party, to support electoral bonds.
• ADR v. Union of India (Supreme Court, 15 February 2024): struck down those changes and the electoral bond scheme.

• After 2024: with bonds gone, electoral trusts are the main lawful route for large company donations. A trust is a non-profit company that collects donations and passes them on to parties.

  • Today these trusts are registered under s.8 of the Companies Act 2013 [4]. Earlier they were set up under s.25 of the Companies Act 1956 [1].
  • Each year a trust must pass on at least 95% of what it receives [2].

• Foreign-linked companies: in ADR v. Union of India (Delhi High Court, March 2014), the court found that the BJP and INC had taken money from Vedanta subsidiaries, which then counted as "foreign sources".

• The Finance Act 2016 (for FCRA 2010) and the Finance Act 2018 (for FCRA 1976) changed the definition with retrospective effect, meaning the change also applied to the past.
• Now an Indian company with foreign shareholding within the FDI limits is not a foreign source, so it may donate.

Don't confuse with

• Electoral bonds: these were a separate scheme for donating without revealing the donor's name. The 2017 change to s.182 was made to support them. Both were struck down together in 2024, but s.182 itself still stands with its original conditions.
• Electoral trusts: a trust is a go-between that collects money from companies and passes on at least 95% to parties [2]. Under s.182, a company gives directly to a party and names that party in its own accounts.
• s.29C RPA disclosure: s.29C is the party's duty to report donations above ₹20,000 to the ECI. s.182 is the company's duty to disclose in its profit and loss account.
• Candidate expenditure limit (s.77 RPA): this caps what a candidate spends (₹95 lakh for larger Lok Sabha seats). s.182 caps what a company gives. Neither one caps a party's spending.

Prelims Hooks

• s.182 Companies Act 2013: the company must be at least 3 years old and may give up to 7.5% of its average net profit of the last 3 financial years. It must disclose the amount and the party's name, and its board must approve the donation by resolution.
• Government companies are barred under both s.182 Companies Act and s.29B RPA. Trap: private companies with foreign shareholding within FDI limits are not barred, after the 2016 and 2018 FCRA amendments.
• Finance Act 2017: removed the 7.5% cap and the duty to name the party, to support electoral bonds. ADR v. Union of India (15 February 2024): the Supreme Court struck these changes down.
• s.80GGB = deduction for company donors. s.80GGC = deduction for individual donors. There is no deduction for cash donations [3].
• s.29C RPA: donations above ₹20,000 must be reported in Form 24A. Trap: the party files this report with the ECI, not the company.
• Electoral trusts must pass on at least 95% of what they receive each year [2]. They are registered under s.8 of the Companies Act 2013 [4].

Mains Points

• Transparency vs donor privacy:
• The 2017 changes let companies give without limit and without naming the party. That weakened the voter's right to know.
• The 2024 judgment restored disclosure on the basis of Article 19(1)(a).

• Companies argue that open giving can expose them to pressure from rival parties. A balance is needed between the public's right to know and protection for donors.

• The electoral-trust gap: large company money now flows mainly through trusts. Trusts disclose their donors, but voters cannot easily match one donor to one party. Requiring trusts to disclose each donor-to-party link would close this gap.

• Wider reform: donation rules work only with strong enforcement. Suggested steps include:
• a legal duty for parties to file audited accounts with the ECI;
• bringing parties under the RTI Act (the CIC said so in 2013, but parties did not comply);
• state funding of elections (Goswami Committee, 1990; Indrajit Gupta Committee, 1998) to reduce parties' dependence on company money;
• care over retrospective law changes like the FCRA amendments, which raise rule-of-law concerns when Parliament changes the law in its own interest.

Related concepts

• Money power in elections
• Election expenditure limits
• Star campaigner
• Section 29C of the RPA 1951
• Section 13A of the Income Tax Act 1961
• Cash donation limit
• Foreign funding of political parties
• Electoral trusts

Read more

• Money power I: expenditure limits and party finance