Election Finance

What is Election Finance

Election finance in India comprises three principal areas recognized by law and the Election Commission: the cost of conducting elections, which refers to all official government expenditure on organizing and administering the electoral process; the expenditure incurred by individual candidates, strictly regulated under the Representation of the People Act, 1951, requiring candidates to maintain detailed accounts and comply with prescribed spending limits; and the expenditure by political parties, who must disclose large donations and submit audited annual accounts to the Election Commission, although there is currently no statutory ceiling on total party expenditure. These components collectively establish the formal framework of election finance in the country.

Money, as recognized by the Supreme Court in Kanwar Lal Gupta v. Amar Nath Chawla (1975) 3 SCC 646, operates as a decisive factor in elections, serving as an asset for campaign publicity and political outreach. The Court observed that access to substantial funds provides a candidate or party a “significantly greater opportunity for the propagation of its programme” than its rivals. Such financial disparity, it warned, leads to “serious discrimination between one political party or individual and another on the basis of money power,” resulting in some voters being denied “an equal voice” and some candidates “an equal chance”.

Official Definition of Election Finance

Election finance in India encompasses three core facets: the enormous cost of conducting elections, where the 2024 Lok Sabha polls alone reportedly cost ₹1.35 lakh crore, making Indian elections the world’s most expensive (New Indian Express); the diverse sources of funds raised by political parties including donations, electoral trusts, etc where financial declarations from 22 major parties showed ₹18,742 crore available, with marked concentration among national parties; and the regulated expenditure by election candidates, governed by the Representation of the People Act, 1951, which mandates detailed accounting and imposes spending limits, though the lack of party spending caps creates significant transparency and equity challenges.

The regulatory framework governing election finance in India must be understood by examining several statutes and rules that together create a comprehensive legal regime. Primarily, the provisions of the Representation of the People Act, 1951, along with the Conduct of Election Rules, establish the fundamental regulations for candidate and party expenditure as well as disclosure requirements. However, the Companies Act regulates corporate contributions to political parties, the Income Tax Act sets tax-related compliances and exemptions for political donors and parties, and the Foreign Contribution (Regulation) Act controls the receipt of foreign funds by political actors. Therefore, a holistic understanding of election finance laws in India requires analysis of these interlinked legislative instruments and their respective regulatory mechanisms.

As defined in Legislation

i. Expenditure incurred by Election Candidate

1. Limits on expenditure Candidates are subject to statutory limits on how much they can spend for election purposes. Currently, the limits range between ₹54-70 lakhs for Parliamentary constituencies and ₹20-28 lakhs for Assembly constituencies. This total includes expenditures made by the candidate themselves, their political party, and supporters who actively campaign for the candidate. However, costs associated with a party leader's general publicity for the party or campaigning that does not name a specific candidate are excluded from these limits. The rules for these limits are specified in Section 77 of the Representation of the People Act, 1951, and Rule 90 of the Conduct of Elections Rules, 1961, as amended.
2. Disclosure of Expenditure After the election, each candidate is required to submit a detailed statement of all election expenditures to the District Election Commissioner within thirty days of the results. This requirement promotes transparency and accountability in campaign spending and is mandated by Sections 77 and 78 of the Representation of the People Act, 1951, and the relevant rules of the Conduct of Elections Rules, 1961. The Election Commission scrutinizes these disclosures.

ii. Contribution to Political Parties

1. Limits on Contribution There are no set legal limits on individual contributions to political parties in India. However, companies can contribute only if they have existed for at least three years, and the total annual contribution must not exceed 7.5% of their average net profits from the last three financial years. All such contributions must be approved by a resolution of the company’s board of directors. Foreign contributions to political parties and candidates are not allowed, as per the Foreign Contribution (Regulation) Act, 2010.
2. Disclosure of Contribution Political parties must submit annual reports to the Election Commission listing all contributions above ₹20,000 as required by Section 29C of the Representation of the People Act, 1951. Donations from companies must be disclosed in their profit and loss accounts as required by the Companies Act. Political donations are also governed by Income Tax law, which sets specific reporting and deduction provisions.
3. Election Bonds Electoral bonds are a mechanism that allows any individual or corporation to anonymously donate funds to political parties. These instruments are regulated under current laws and are intended to provide a cleaner, more transparent method for political donations, though they have been subject to significant public debate over issues of transparency.

As defined in official Government reports

i. National Commission to Review the Working of the Constitution (NCRWC)

The NCRWC recommended comprehensive reforms to improve transparency and accountability in election finance. It proposed mandatory disclosure of all political party income and expenditure, with independent auditing of accounts. It advocated strict penalties for violations and called for public declaration of candidates’ assets and liabilities before elections. The commission emphasized internal democracy within political parties, including fair candidate selection and leadership representation. While it recognized the benefits of state funding, it recommended deferring its introduction until regulatory mechanisms were robustly established.

ii. Law Commission

1. 1999 Report (170th Law Commission Report) This report highlighted the urgent need for unified legislation to regulate election financing and increase political funding transparency. It recommended raising expenditure limits to reflect inflation, mandatory and audited submission of party accounts, public disclosure of contributions above certain thresholds, and stringent criminal and civil penalties for failure to disclose or submission of false accounts. It proposed immediate de-recognition of parties violating the law and enhanced scrutiny of candidates and party funding. The report underscored that regulating both candidate and party expenditure comprehensively is crucial to preventing undue monetary influence in elections.
2. 2015 Report (255th Law Commission Report) Building on prior recommendations, this report proposed extending the timeframe for election expense disclosure from nomination notification to the declaration of results. It suggested annual audited account submissions by political parties to the Election Commission, expanded donor detail disclosures (including names, addresses, and PAN details), and stronger penalties, with candidate disqualification for up to five years for non-compliance. It emphasized public access to election finance data to enhance transparency and accountability. Additionally, it promoted the use of electoral trusts for fair donor distribution and reinforced internal party democracy reforms.

As defined in Case laws

The relationship between financial resources and electoral success in India has been repeatedly recognized by the Supreme Court. In Kanwar Lal Gupta v. Amar Nath Chawla (1975) 3 SCC 646, the Court observed that money plays a decisive role in election campaigns by enabling extensive advertising, canvassing, and mobilization efforts. It noted that candidates or parties with greater financial means possess a distinct advantage under the current electoral system. The Court also emphasized that expenditure limits are intended to ensure equality among candidates, allowing even less wealthy individuals or smaller parties to contest on an equal footing with financially stronger opponents.

This concern was reiterated in Ashok Shankarrao Chavan v. Madhavrao Kinhalkar (2014) 7 SCC 99, where the Court highlighted the pervasive influence of “money power” in elections, observing that many voters were reportedly willing to exchange votes for cash and that excessive spending often determined candidacies over merit.

Empirical data support these observations: in the 2014 Lok Sabha elections, 27% of all candidates were classified as “crorepatis,” with average assets exceeding ₹3.16 crore—an increase from 16% in the 2009 elections (Association of Democratic Reforms, 2014).

The Supreme Court also recognized the prevalence of unaccounted money and corruption in electoral financing. In People’s Union for Civil Liberties (PUCL) v. Union of India (2003) 4 SCC 399, citing the 2002 report of the National Commission to Review the Working of the Constitution (NCRWC), the Court remarked that expenditure limits were routinely violated and that the need for large sums to contest elections fostered corruption, deterred honest candidates, and undermined governance.

In Ashok Shankarrao Chavan v. Madhavrao Kinhalkar (2014) 7 SCC 99, the Supreme Court observed that the distribution of cash to voters had become “rampant,” noting that such practices were widely reported in the media and posed serious challenges to the Election Commission’s enforcement powers. The Court expressed concern that candidates frequently violated expenditure limits prescribed under Section 77 of the Representation of the People Act, 1951, to influence voters through corrupt means. It further remarked that individuals genuinely committed to public welfare, who refrained from such practices, were increasingly marginalized in the electoral process.

Reports and official studies have documented various methods used to disguise illicit election spending, including hosting community feasts, sponsoring social events, offering costly gifts, topping up mobile phone balances, or distributing cash through unconventional channels such as newspapers, moneylenders, and pawnbrokers. Tamil Nadu, for instance, gained notoriety for the so-called “Thirumangalam formula,” referring to the 2009 Thirumangalam by-election in which voters allegedly received ₹5,000 each in cash or equivalent inducements.

The issue extends beyond direct bribery and black money to encompass concerns over lobbying and regulatory capture, wherein wealthy donors and corporations may exert disproportionate influence over elected representatives. In Kanwar Lal Gupta v. Amar Nath Chawla (1975) 3 SCC 646, the Supreme Court, drawing upon commentary from the Harvard Law Review, acknowledged the danger of financial dependence on campaign contributions, noting that such pressures could compromise the independence of elected officials. Similarly, Justice Kennedy, in the U.S. Supreme Court’s decision in McConnell v. Federal Election Commission (540 U.S. 93, 2003), emphasized that the act of soliciting and receiving political contributions inherently involves a “quid” to both donor and recipient, underscoring the link between solicitation and corruption.

Electoral Bond

In Association for Democratic Reforms v. Union of India (2024), the Supreme Court declared the Electoral Bond Scheme unconstitutional for violating the voters’ right to information under Article 19(1)(a) of the Constitution. The Court reasoned that in a democracy, citizens must have access to information about the financial contributions made to political parties, as such information directly affects electoral choices and the accountability of governance. By allowing complete anonymity for donors, the scheme curtailed the free flow of information that enables voters to make informed decisions. The Court held that transparency in political funding is a core element of free and fair elections and that secrecy in this context undermines the democratic process.

The Court rejected the Union government’s claim that the scheme enhanced transparency by routing donations through banking channels and protecting donors’ privacy. It held that while privacy is a legitimate concern, it cannot override the public’s right to know who funds political parties. Donations to political parties were viewed not as private transactions but as activities that have significant public consequences, since financial contributions can influence government policies and decisions. Therefore, the right to information of voters was held to outweigh the right to anonymity of donors.

The Bench also observed that the design of the scheme created an imbalance of information. While the public was kept in the dark, the State Bank of India and the government could access donor details, which could give the ruling party an unfair advantage by tracking contributions to other parties. This, the Court stated, distorted the level playing field essential to democratic competition.

Additionally, the Court found that amendments made through the Finance Act of 2017 to laws such as the Representation of the People Act, the Income Tax Act, and the Companies Act contributed to opacity in political funding. By removing limits on corporate donations and exempting parties from disclosing contributions received through bonds, the amendments enabled unlimited and anonymous corporate influence. The Court warned that such a framework fosters quid pro quo arrangements between corporations and political actors, eroding accountability and compromising governance.

In conclusion, the Supreme Court struck down the Electoral Bond Scheme and the related statutory amendments as unconstitutional. It ordered the State Bank of India to stop issuing electoral bonds and to disclose all details of bonds purchased and redeemed since April 2019 to the Election Commission of India, which was directed to make the information public. The judgment reaffirmed that transparency and the voters’ right to information are indispensable to maintaining the integrity of elections and preserving the democratic spirit of the Constitution.

As defined in the Official Documents

Parliamentary reply

Expenditure on Holding Elections in India

In response to the question on election‑expenditure, the Minister of Law and Justice explained that, under government policy, the full cost of conducting elections to the Lok Sabha (general or by‑elections) is borne by the Central Government when the election is held independently. When elections to a State or Union Territory Legislative Assembly are held at the same time as a Lok Sabha election, the expenditure is shared equally (50:50) between the Centre and the State/UT.

For a general election to the Lok Sabha, the respective State or UT government (if it has a legislature) submits provisional estimates of expenditure to the Central Government. The Central Government releases funds on a year‑by‑year basis, according to these demands and available budgetary provisions. The State/UT government incurs the expenditure from its Consolidated Fund and then seeks reimbursement from the Centre. Final settlement of election accounts occurs only after receipt of audit certificates from the Accountant General of the concerned State/UT.

According to the reply, the estimated demand raised by State/UT governments for conducting the 2009 Lok Sabha election was approximately ₹1,114 35 45,000 (₹1,114.35 crore). Since audit certificates from all States/UTs were not yet received, the actual total expenditure could not be furnished. Meanwhile, the estimated demand for the 2004 Lok Sabha elections was about ₹1,093 06 81,319 (₹1,093.06 crore). The increase in expenditure over the years was attributed to general inflation, a significant rise in the number of voters and contestants, and consequent higher costs of polling booths and election materials.

The Government also stated that it was making all possible efforts to keep the expenditure on elections to the barest minimum.

International Experience

United Kingdom

Expenses

In the United Kingdom, both party and candidate election expenditures are strictly regulated under the Representation of the People Act 1983 (RPA 1983) and the Political Parties, Elections and Referendums Act 2000 (PPERA). Section 76(2) of the RPA 1983 and the 2014 Order prescribe specific limits on candidate spending depending on the constituency type, for example, £8,700 plus 9 pence per elector for county constituencies in parliamentary elections. Party campaign expenditure, which promotes party policies or general political objectives, is capped under Schedule 9 of the PPERA at £30,000 per constituency or a total of £810,000 for England, £120,000 for Scotland, and £60,000 for Wales. The UK further distinguishes between “long campaign” (pre-candidacy) and “short campaign” (post-nomination) expenditure periods, each with separate limits, ensuring continuous financial control throughout the election cycle. Additionally, “third party” or notional expenditure, money spent by individuals or groups to support or oppose candidates, is also limited, with unregistered third parties allowed to spend only up to £500 unless registered as recognised campaigners.

Contributions

The UK imposes no cap on the amount of contributions individuals or corporations can make to political parties or candidates. However, under Section 54 of the PPERA, donations above £200 can only come from “permissible donors” such as registered UK electors, UK-incorporated companies, or trade unions. Corporate donations require prior shareholder approval, ensuring internal accountability. Foreign donations are prohibited, while anonymous contributions above £500 are disallowed under Section 52(2) of the PPERA. Donations below £50 are disregarded under Schedule 2A of the RPA 1983. This regulatory balance allows broad participation in political financing while maintaining transparency regarding the sources of contributions.

Disclosure

Transparency forms a central pillar of the UK’s political finance framework. All registered parties must maintain detailed accounting records and file annual statements of accounts. Under Sections 62 and 63 of the PPERA, parties must submit quarterly donation reports and weekly reports during election periods, listing the names and addresses of donors contributing more than £7,500. Candidates are also required under Section 81 of the RPA 1983 to submit expenditure returns within 35 days of the result declaration. The Electoral Commission publishes all these reports, including scanned invoices and receipts, ensuring public accessibility. Financial disclosure obligations also extend to third parties and regulated donees such as Members of Parliament. The repeal of Section 68 of the PPERA in 2006 eliminated redundant reporting requirements for small multiple donations.

Penalties

Enforcement of these regulations rests with the Electoral Commission, which possesses supervisory and investigatory powers to examine financial records and ensure compliance. Under Schedule 20 of the PPERA, non-compliance can attract fines up to £20,000 for serious breaches or imprisonment for false statements. The Commission may also issue compliance or restoration notices, stop notices, or accept enforcement undertakings. Additionally, courts may order forfeiture of impermissible or concealed donations upon the Commission’s application. While the Commission cannot impose criminal sanctions directly, it may refer serious violations to criminal authorities for prosecution. This robust combination of preventive, corrective, and punitive measures underscores the UK’s commitment to transparency, accountability, and integrity in political finance.

Germany

Expenses

There are no limits on political parties’ campaign expenditure in Germany, whether on the total amount, specific campaign items, or routine spending. Section 1(4) of the Political Parties Act 1967 stipulates that parties must use their funds exclusively to perform the functions assigned to them under the Basic Law and the Act. Consequently, there are no quantitative or qualitative restrictions on party spending for elections or daily operations. Similarly, there appear to be no statutory limits on how much candidates can spend.

Contributions

Section 25 of the Political Parties Act establishes that there are no limits on contributions to political parties, and donations up to €1,000 can be made in cash. Small donations and party membership dues have been tax-deductible since 1967; however, pursuant to a Supreme Court ruling in 1994, corporate donations are not deductible. Corporate donations are also prohibited if the State holds more than 25 percent of the company. Donations from charitable organisations, trade unions, professional associations, and industrial or commercial associations are prohibited. Anonymous donations exceeding €500 are likewise prohibited.

While the law is silent on donations to individual candidates, such donations appear permissible, including foreign contributions. Parliamentary rules govern disclosure in these cases, but section 25(1) requires candidates to immediately transfer all donations to the party’s Executive Committee.

Disclosure

Article 21(1) of the Basic Law requires parties to publicly account for their assets and the sources and use of their funds. Under Section V of the Political Parties Act 1967, parties must submit annual reports detailing the origin of funds, statements of income and expenditure, assets and liabilities, and a list of large donors to the President of the Bundestag. These reports are audited by chartered accountants and published as legislative documents. Public disclosure in annual reports is limited to donations exceeding €10,000 per year, while private donations greater than €50,000 must be disclosed immediately to the Bundestag President.

The annual report includes membership dues, mandatory contributions from officials, individual and corporate donations, receipts from commercial activities, and public funds. Sections 23 and 23a require the Bundestag to evaluate and publish these reports to ensure compliance, and the Supreme Audit Institution (BRH) further verifies adherence to these procedures.

Penalties

Part VI of the Political Parties Act provides for fiscal and criminal sanctions for serious violations. Section 31b mandates that inaccuracies in financial statements resulting in excess public funding are corrected by the Bundestag President, with fines equal to twice the misreported amount or 10 percent of the party’s assets. Section 31c imposes penalties of twice the undisclosed amount or three times any illegally retained donations. Section 31d provides for imprisonment up to three years or fines for intentional concealment of the origin or use of party funds, evasion of disclosure obligations, falsifying financial statements, or splitting large donations to avoid reporting. Auditors and their assistants are also liable under this section for failure to report relevant facts.

United States of America

Overview

Campaign finance laws in the United States vary at the federal, state, and local levels. At the federal level, the Federal Election Commission (FEC), an independent agency, enforces these laws.

Expenses

There are no limits on election expenses by candidates or political parties. In Buckley v. Valeo (1976), the Supreme Court struck down the Federal Election Campaign Act’s individual expenditure limits, ruling that such limits curtailed free speech and violated the First Amendment. The Court emphasized that restrictions on campaign spending reduce the quantity of political expression by limiting the issues discussed, the depth of their exploration, and the audience reached. Publicly funded presidential candidates are subject to constitutional upper limits on expenditures.

Independent third-party expenditures are also unlimited. Corporations and unions may spend on communications that advocate for or against a candidate without coordination with any party, agent, or political committee.

Contributions

In Citizens United v. FEC (2010), the Supreme Court removed limits on independent expenditures by corporations, associations, and labor unions, while maintaining the ban on direct corporate contributions to candidates. After Buckley, distinctions existed between contributions to candidates and candidate spending; however, the McCutcheon v. FEC (2014) ruling struck down aggregate limits on the total amount an individual may contribute to federal candidates and national parties. The Court held that such limits did not further the government’s interest in preventing quid pro quo corruption and violated the First Amendment. Individual contributions to a single candidate or Political Action Committee (PAC) remain capped, and the ban on direct corporate contributions continues.

Disclosure

The Federal Election Campaign Act (FECA) mandates disclosure of all sources and uses of funding by candidates, party committees, and PACs. Every committee must appoint a treasurer responsible for maintaining records and filing reports with the FEC. Contributions over $50 must be reported within 10 days; smaller contributions within 30 days. Independent expenditures require disclaimers identifying the source of funding. Reports must be filed quarterly if the aggregate exceeds $250 per election, 48-hour reports apply for expenditures of $10,000 or more between the start of the year and 20 days before an election, and 24-hour reports apply within 20 days of an election for contributions of $1,000 or more.

Section 434 of FECA specifies reporting requirements for different political committees, including authorized and unauthorized committees and candidate contributions. Reports must detail cash on hand, total receipts, contributor identities, disbursements, and other financial transactions. The FEC maintains a public database, and campaign finance reports are publicly available within 48 hours of receipt. Contributions over $1,000 received within 20 days of an election must be reported within 48 hours.

Penalties

The FECA empowers the FEC to audit and investigate political committees. Noncompliance may trigger an enforcement case, known as a Matter Under Review (MUR), handled by the Office of Complaints Examination and Legal Administration and the Enforcement Division of the Office of General Counsel. In some cases, candidates or committees may resolve issues through the FEC’s Alternative Dispute Resolution (ADR) program. Late or non-submissions of reports are subject to the FECA’s Administrative Fine Program.

Australia

Expenses

There are no limits on expenditure by political parties or candidates in Australia.

Contributions

There are no contribution limits, and no ceiling on how much a donor can contribute or a party can raise. Donations from foreigners, trade unions, or government contractors are not prohibited. Section 306 of the Commonwealth Electoral Act 1918 makes it unlawful for any political party, candidate, or their representatives to receive a gift exceeding the disclosure threshold unless the name and address of the donor are provided. Section 327(2) criminalises discrimination against donors by opposing parties, including denial of work, membership, or other coercive actions.

Disclosure

Both parties and candidates must publicly disclose their expenditures, and donors and parties must report contributions exceeding the disclosure threshold, currently set at AUD 12,800. Candidates’ returns to the Australian Electoral Commission must include the total donations received, total number of donors, details of donations above the disclosure threshold, and election expenditures such as advertising, printing, and direct mail costs. Since 2006–07, third-party expenditure above the disclosure threshold must also be reported annually.

Political parties must file annual returns including total receipts, donor details for contributions above the disclosure threshold, total payments, and total debt as of 30 June. Sections 304, 305A, and 305B of the Commonwealth Electoral Act require disclosure of in-kind donations within 15 weeks for candidates and within 20 weeks for parties. Section 311 mandates that Commonwealth Departments report payments to advertising agencies, polling organisations, and other related service providers. Election disclosure returns are made available for public inspection 24 weeks after polling and are posted online, while annual returns remain available until the first working day of February of the following year.

Penalties

Section 315 of the Act provides penalties for non-compliance. Failure to file a required return can result in fines of AUD 5,000 for party agents or AUD 1,000 in other cases. Furnishing incomplete or false information can result in fines up to AUD 10,000 for party agents or AUD 5,000 for others. Section 316 empowers the Australian Electoral Commission to investigate compliance, including mandatory investigations for gifts or property exceeding AUD 25,000. False or misleading information during investigations may result in fines up to AUD 1,000 or imprisonment up to six months. The Commission may refer cases of non-compliance to the Commonwealth Director of Public Prosecutions.

Laws Regulating Election Expenditure, Contributions, and Disclosure

(i) Laws Regulating Election Expenditure for Candidates

5.(i).1 Section 77 of the Representation of the People Act, 1951 (RPA), along with the Conduct of Election Rules, 1961, lays down the framework for regulating election expenditure by candidates. It requires every candidate, either personally or through their election agent, to maintain a separate and accurate record of all expenses incurred or authorized in connection with the election, beginning from the date of nomination until the declaration of results. The provision also clarifies that certain categories of expenditure are excluded from a candidate’s account. For instance, expenses incurred by leaders of a political party for travel or campaigning on behalf of the party as a whole are not to be considered part of a candidate’s personal election expenditure. Similarly, any expenditure made by government officials while performing their official duties does not fall within the scope of a candidate’s election expenses.

5.(i).2 Under Section 77(3) of the RPA, the total election expenditure incurred by a candidate must not exceed the limits prescribed by the Election Commission under Rule 90 of the Conduct of Election Rules, 1961. The latest amendment to these rules, through the Conduct of Elections (Amendment) Rules, 2014, notified on 28 February 2014, fixed the ceiling on expenditure between ₹54–70 lakhs for parliamentary constituencies and between ₹20–28 lakhs for assembly constituencies, depending on the size and nature of the constituency. A violation of these expenditure limits is treated as a “corrupt practice” under Section 123(6) of the RPA. Such an offence attracts disqualification for up to six years, both from contesting elections and from voting, as prescribed under Sections 8A and 11A. Furthermore, Section 10A provides for disqualification in cases where a candidate fails to submit the account of election expenses. These provisions collectively aim to ensure transparency, equity, and integrity in the electoral process by curbing the undue influence of money power in elections.

(ii) Laws Regulating Election Expenditure for Political Parties: Third Party Expenditure

5.(ii).1 Section 77 of the Representation of the People Act, 1951 (RPA) does not directly regulate or limit the election expenditure of political parties. This gap in the law has led to the issue of third party expenditure, which refers to spending on behalf of a candidate by political parties, corporate donors, or other well-wishers.

5.(ii).2 Until 1975, the Supreme Court consistently held that third party expenditure could not be regarded as election expenditure within the meaning of Section 77. However, in Kanwar Lal Gupta v. Amar Nath Chawla, the Court shifted this stance. It held that when a political party spends money specifically for a candidate’s election, distinct from general party campaigning, and the candidate knowingly benefits from, participates in, or consents to it, it can be inferred that such expenditure was impliedly authorized by the candidate. The Court emphasized that otherwise, the purpose of imposing individual expenditure limits would be defeated.

5.(ii).3 The Court’s interpretation in Kanwar Lal Gupta prompted legislative action. Parliament amended the RPA in 1974, adding an explanation to Section 77(1) stating that any expenditure incurred by a political party, association, or individual (other than the candidate or their election agent) in connection with the election would not be treated as expenditure incurred or authorized by the candidate. This effectively nullified the Supreme Court’s earlier decision.

5.(ii).4 The constitutionality of the 1974 amendment was later challenged in P. Nalla Thampy Terah v. Union of India. The petitioners argued that the amendment created inequality between rich and poor candidates, thereby violating Article 14. The Supreme Court, while expressing reservations, upheld the amendment and observed that the purpose of election laws was to ensure equal opportunity for all, not economic equality. The Court noted that the law had effectively allowed everyone except the candidate and their agent to spend freely, provided that such expenses were not authorized by the candidate.

5.(ii).5 In later years, the judiciary criticized this position, observing that Section 123(6) of the RPA which penalizes excessive expenditure had become ineffective. The Court pointed out that since political parties were not required to maintain transparent records of donations or expenses, it became difficult to determine the real source of funds. This issue was addressed in Common Cause (A Registered Society) v. Union of India, where the Supreme Court reversed the burden of proof. It held that any expenditure made in connection with a candidate’s election, to the knowledge of the candidate or their agent, would be presumed to have been authorized by them unless proven otherwise.

5.(ii).6 Owing to persistent criticism of the 1974 Explanation, it was repealed by the Election and Other Related Laws (Amendment) Act, 2003. The amendment introduced a new Explanation under which outside spending by political parties or supporters must now be reported by the candidate and included within their election expenditure ceiling.

5.(ii).7 The present legal position is that expenses incurred by (a) leaders of political parties for travel or other means of transport for general party propaganda, and (b) political parties or supporters for general promotion of the party’s programme, are not considered expenses incurred or authorized by a candidate under Section 77 of the RPA. However, all other spending directly connected to a candidate’s election must be accounted for within the expenditure limits prescribed by law.

(iii) Laws Regulating Disclosure of Election Expenditure for Candidates and Parties

5.(iii).1 Pursuant to Sections 77(1) and 78 of the Representation of the People Act (RPA), read with Rule 86 of the Conduct of Elections Rules, all contesting candidates are required to maintain a correct account of their election expenses and lodge a true copy of the same with the District Election Officer within thirty days from the date of election of the returned candidate. Contravention of these provisions may lead to disqualification for a period of up to three years under Section 10A of the RPA. The Supreme Court has clarified in several decisions that failure to maintain correct accounts alone does not constitute a corrupt practice under Section 123(6), provided the prescribed limit of expenditure is not exceeded. In Ashok Shankarrao Chavan v Madhavrao Kinhalkar, the Court emphasized that the purpose of Sections 77(1) and (3), read with Section 78, is to ensure “absolute purity in elections” by mandating accurate maintenance of accounts. The Court observed that the requirement of maintaining and disclosing election expenses is not a mere formality but an essential safeguard to prevent the use of unethical means in elections.

5.(iii).2 In People’s Union for Civil Liberties (PUCL) v Union of India, the Supreme Court endorsed the recommendations of the National Commission to Review the Working of the Constitution (NCRWC), which stressed the need for stronger disclosure and auditing mechanisms for election finance. The Court cited the NCRWC’s observation that both political parties and individual candidates should be subject to proper statutory audits of their election expenses. The recommendation further required that candidates submit audited statements of their expenditure under specific heads, with the Election Commission devising formats to prevent manipulation of accounts and enforcing compliance through mandatory audits.

5.(iii).3 Acting upon these judicial observations, the Election Commission of India (ECI), under Article 324 of the Constitution, issued transparency guidelines (No. 76/PPEMS/Transparency/2013) on 29th August 2014, effective from 1st October 2014, after consultations with recognized political parties. These guidelines introduced several key measures:

5.(iii).4 On election expenses by parties: All payments exceeding ₹20,000 must be made by cheque or draft, except in areas without banking facilities or for salary and reimbursement payments to party workers.

5.(iii).5 On election expenses by unrecognized parties: Although not legally bound to submit expenditure statements, unrecognized parties must now file them with the Chief Electoral Officer of the State where their headquarters are located.

5.(iii).6 On financial assistance to candidates: Political parties, while free to spend on their general propaganda, must comply with expenditure limits prescribed under Section 77(3) of the RPA and Rule 90 of the Election Rules when providing financial assistance to candidates. Such payments must be made only through account payee cheques, drafts, or bank transfers, not in cash.

5.(iii).7 On accounts and audit: All parties must maintain books of accounts under Section 13A of the Income Tax Act, following the guidance of the Institute of Chartered Accountants of India. These accounts must be audited and certified by qualified Chartered Accountants and submitted annually to the ECI by 31st October, accompanied by the Auditor’s Report.

5.(iii).8 In a subsequent clarification dated 19th November 2014 (No. 76/PPEMS/Transparency/2013), the ECI asserted that these “lawful instructions” were issued to fill the existing legal vacuum concerning election expenditure regulation. The Commission based its authority on the Supreme Court’s ruling in Mohinder Singh Gill v Chief Election Commissioner and Article 324 of the Constitution, declaring these transparency directives binding on all political parties.

(iv) Laws Regulating Contributions to Political Parties

5.(iv).1 Section 29B of the Representation of the People Act (RPA) clearly provides that political parties are permitted to accept voluntary contributions from individuals and corporations without any statutory ceiling, provided the donor is neither a government company nor a foreign source. Foreign contributions are strictly prohibited under Section 3 of the Foreign Contribution (Regulation) Act, 2010 (FCRA). This legal framework thus allows broad fundraising freedom for political parties while maintaining safeguards against foreign or state-controlled influence in domestic politics.

5.(iv).2 One of the most significant sources of political funding in India is corporate contributions. Section 182(1) of the Companies Act, 2013 explicitly authorizes companies other than government companies and those less than three years old to make political donations directly or indirectly to political parties. However, such contributions must comply with specific statutory requirements. The provision mandates that the total political contribution made by a company in any financial year shall not exceed 7.5% of its average net profits during the three immediately preceding financial years. Additionally, any such contribution must be authorized by a resolution passed at a meeting of the company’s Board of Directors. This resolution serves as a legal justification for both the making and acceptance of the political donation.

5.(iv).3 The current limit of 7.5% represents an increase from the earlier cap of 5% prescribed under Section 293A of the Companies Act, 1956. This change reflects a liberalization in corporate political funding, though it remains subject to procedural and disclosure safeguards. Further, Rule 4(7) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 clarifies that any direct or indirect contribution made to a political party under Section 182 cannot be treated as a Corporate Social Responsibility (CSR) activity. This distinction ensures that political donations are kept separate from activities intended for social development or community welfare under CSR mandates.

5.(iv).4 Section 182(4) of the Companies Act, 2013 prescribes strict penalties for violations of these provisions. A company that contributes in contravention of Section 182 may be fined up to five times the amount unlawfully contributed. Furthermore, any officer of the company found in default may face imprisonment for a term of up to six months, a fine equivalent to five times the contribution amount, or both. These penal provisions reinforce accountability and transparency in the realm of corporate political funding, ensuring compliance with statutory norms and preventing misuse of corporate resources for political influence.

(v) Laws Regulating Disclosure of Political Contributions by Parties and Companies

5.(v).1 Section 29C of the Representation of the People Act (RPA) governs the disclosure of donations received by political parties. It requires every political party to prepare and submit an annual report to the Election Commission of India (ECI), detailing all contributions exceeding ₹20,000 received from any individual or non-government company. Failure to comply with this requirement results in the party losing eligibility for income tax exemptions under Section 29C(4) of the RPA read with Section 13A of the Income Tax Act, 1961. The Supreme Court has emphasized the importance of transparency in political funding, cautioning that the failure to maintain proper accounts of receipts and expenditures opens the door to financial improprieties and undermines the purity of elections.

5.(v).2 Section 13A of the Income Tax Act further strengthens the disclosure requirement by exempting the income of political parties from tax only if they maintain proper records of the sources of their funding. This includes the names and addresses of contributors for donations exceeding ₹20,000. Additionally, Section 80GGB of the Income Tax Act allows companies to claim tax deductions for contributions made to political parties or electoral trusts, while Section 80GGC extends similar benefits to individual donors. Together, these provisions aim to promote accountability while incentivizing lawful and transparent political donations.

5.(v).3 Section 182(3) of the Companies Act, 2013 imposes disclosure obligations on companies making political contributions. Each company must disclose in its profit and loss account the total amount contributed and the names of the political parties to which the donations were made during a financial year. Non-compliance with these disclosure requirements invites penalties under Section 182(4), including fines and possible imprisonment for responsible officers. This provision ensures that shareholders and regulators can scrutinize corporate political spending.

5.(v).4 To enhance transparency in corporate political funding, the Election Commission, acting under Article 324 of the Constitution, introduced a scheme on 10th December 2013 regulating “Electoral Trust Companies.” Under this framework, companies contributing to Electoral Trusts are required to disclose the total amounts transferred to such trusts, even though they are not obliged to name specific political parties. Electoral Trusts, in turn, must maintain comprehensive accounts detailing all receipts from corporate or other sources and the corresponding donations made to political parties under Section 182(3) of the Companies Act. They must also submit annual contribution reports to the ECI containing the names, addresses, and amounts donated to each political party. This system enhances indirect transparency in corporate political contributions.

5.(v).5 Finally, Section 75A of the RPA mandates every elected representative in Parliament to disclose their assets and liabilities to the Speaker of the Lok Sabha or the Chairperson of the Rajya Sabha within ninety days of taking their oath of office. This requirement ensures continued financial transparency and accountability of elected representatives, complementing the broader disclosure framework aimed at maintaining the integrity of India’s electoral and political finance system.

Official Documents

ECI Website

Election Expenditure Monitoring

Election expenditure monitoring in India is a comprehensive system designed to ensure that elections are conducted freely, fairly, transparently, and peacefully. Candidates are required to maintain daily accounts of their election expenses to ensure that all expenditures, especially legal ones such as public meetings, posters, and advertisements, are truthfully reported and adhere to prescribed spending limits. Monitoring is done not only after elections but continuously during the campaign period to gather accurate evidence, as it becomes difficult to verify expenses once the campaign finishes.

The Election Commission has established a structured monitoring mechanism including Expenditure Observers, Assistant Observers, Flying Squads, Static Surveillance Teams, Video Monitoring Teams, and specialized accounting teams. These teams work in coordination with enforcement agencies such as the Income Tax Department, Police, Border Security Force, State Excise, and Directorate of Revenue Intelligence to prevent and detect illegal expenditures like distribution of money, liquor, or freebies aimed at influencing voters.

Election monitoring machinery comprises of the following:

• Expenditure Observer (EO)
• Assistant Expenditure Observer (AEO)
• Accounting Team (AT)

Expenditure Observers (EOs)

The Expenditure Observer is an official appointed by the Election Commission to supervise the monitoring of election expenses. They typically oversee two to five assembly constituencies, and during Lok Sabha elections, one observer is appointed per parliamentary constituency with additional observers for constituencies considered sensitive for expenditure. The observer’s role includes inspecting the teams monitoring expenses, checking the accounts submitted by candidates, and coordinating closely with enforcement agencies such as the Income Tax Department, Police, BSF, SSB, State Excise, and Directorate of Revenue Intelligence. This coordination helps ensure strict adherence to election expenditure rules and curbs violations, thereby maintaining the fairness and integrity of the electoral process.

For monitoring day-to-day election expenditure incurred by candidates, an election expenditure monitoring mechanism has been established in each constituency. Candidates are required to maintain daily accounts of their election expenses. Although these accounts must be submitted within 30 days after the election results are declared, continuous monitoring during the campaign period is essential to accurately and comprehensively record every expense incurred by candidates and political parties.

Since gathering evidence related to expenses on rallies or meetings after the campaign is challenging, it is primarily the responsibility of the District Election Officer (DEO) to ensure that proper evidence is collected during the election campaign. This evidence is crucial for verifying whether candidates have reported all their expenses truthfully.

To facilitate this monitoring, the structure of the mechanism includes the appointment of Expenditure Observers (EOs) by the Election Commission. There is at least one Expenditure Observer for each district, and typically, each EO oversees no more than five Assembly constituencies. The EO is responsible for observing the election expenses incurred by candidates and coordinating with enforcement agencies to ensure compliance with expenditure limits and transparency norms.

Assistant Expenditure Observer (AEO)

The Assistant Expenditure Observer, or AEO, is appointed by the District Election Officer to assist in monitoring election expenses. If the EO finds the AEO not performing well, they may replace them. The AEO’s duties include extensive touring to assess candidates' election spending, maintaining detailed records like the Shadow Observation Register and Folder of Evidence, and supervising the handling of complaints related to election expenditure within their area. They coordinate with the Returning Officer’s office about candidates’ campaign activities and help the EO inspect candidates’ accounts. In constituencies sensitive to expenditure, extra AEOs are appointed to strengthen monitoring.

Accounting Team (AT)

The Accounting Team consists of one official and one clerk per segment, drawn from Central Government accounts departments. Working under the Assistant Expenditure Observer, they prepare the Shadow Observation Register and carefully maintain video evidence. They record major candidate expenses, such as rallies, at notified rates and calculate total expenditure. This data is compared with candidates' accounts during verification to detect discrepancies, ensuring transparent election spending and compliance with legal limits.

ADR Reports

The “Analysis of Contribution Reports of Electoral Trusts for FY 2023‑24” published by the Association for Democratic Reforms (ADR) examines the flow of funds through electoral trusts in India. Of the 19 trusts registered under the Electoral Trusts Scheme, only 15 submitted contribution reports to the Election Commission of India, and just 6 trusts reported receiving contributions during the year. This indicates that most trusts either did not receive funds or did not report them, raising concerns about activity levels and transparency.

These six trusts collectively received approximately ₹ 1,218.40 crore from corporate and individual donors and disbursed nearly the full amount (₹ 1,218.36 crore) to political parties. Corporate entities contributed about ₹ 1,179.23 crore, while 31 individuals contributed around ₹ 39.17 crore. Among major corporate donors, ArcelorMittal Nippon Steel India Ltd and DLF Ltd each contributed ₹ 100 crore, with the top 10 corporate donors together accounting for over half of the total funds received.

On the disbursement side, Prudent Electoral Trust dominated the distribution of funds, donating about ₹ 1,075.72 crore. The largest recipient was the Bharatiya Janata Party (BJP), which received approximately ₹ 856.46 crore (around 70% of the total disbursed). The Indian National Congress (INC) received around ₹ 156.40 crore (≈ 13%), while regional parties such as the Bharat Rashtra Samithi (BRS), YSR Congress Party (YSRCP), Telugu Desam Party (TDP), Jana Sena Party, and Anna Dravidar Kazhagam received smaller amounts.

ADR highlighted significant transparency and compliance concerns. Nine of the 15 trusts that submitted reports declared zero contributions, and four trusts did not submit reports at all. The report recommends reconsidering the renewal of approvals for inactive trusts, improving traceability of trust promoters, enforcing penalties for non-compliance, and requiring corporate disclosure of political contributions in annual reports and websites.

The report underscores the growing importance of electoral trusts in political funding in India, the concentration of donations among a few large corporate donors, and the concentration of disbursements to a single major party, highlighting the need for stronger regulatory oversight, audit mechanisms, and public disclosure to ensure transparency and fairness.

Research

CMS Report on 2019 Elections

Poll Expenditure: The 2019 Elections is a research report published by the Centre for Media Studies (CMS), New Delhi, analysing the unprecedented rise in spending during India’s 2019 Lok Sabha elections. The study forms part of CMS’s long-term research on electoral finance and corruption, linking increasing poll expenditure with declining transparency and growing governance costs. Introduced by Dr. S. Y. Quraishi, former Chief Election Commissioner of India, and Dr. P. N. Vasanti, CMS Director-General, the report highlights that the 2019 elections were the most expensive ever conducted globally, with an estimated cost of ₹55,000–₹60,000 crore, almost double that of the 2014 general elections.

According to CMS, the 2019 general election was characterised by a record seven-phase campaign, frequent violations of the Election Commission’s model code of conduct, and the extensive use of cash, gold, liquor, and other inducements to influence voters. Nearly ₹3,500 crore worth of illicit materials were officially seized during the polls. The report estimates that, on average, ₹100 crore was spent per constituency, amounting to roughly ₹700 per vote. The study attributes this rise primarily to the growing role of corporate funding, the introduction of electoral bonds, and the removal of earlier restrictions on corporate and foreign donations. Political competition, rather than voter demand, was found to be the main driver of excessive campaign spending.

The CMS study employed its proprietary PEE model (Perceptions, Experiences, and Estimation), combining field surveys, media tracking, and interviews with candidates, observers, and election officials. The research estimated both traceable (“front-end”) expenditures, such as advertising and logistics, and indirect (“other”) expenditures, including unaccounted campaign activities and pre-notification spending.

The report provides a breakdown of estimated expenditure: about 30–35 percent was spent on publicity and media, 20–25 percent on voter inducements, 15–20 percent on formal or official expenses, 8–10 percent on logistics, and 5–10 percent on miscellaneous costs. Candidates themselves accounted for around 40 percent of total spending, political parties for 35 percent, the government and Election Commission for about 15 percent, and media, industry, and sponsors for the remainder.

Regional case studies from Andhra Pradesh and Telangana revealed high voter inducement rates, ranging from ₹1,000 to ₹4,000 per voter in some constituencies. CMS estimated that Andhra Pradesh alone saw combined Lok Sabha and Assembly election spending between ₹7,000 and ₹9,000 crore.

Comparing data from 1998 to 2019, CMS found a six-fold increase in overall poll expenditure—from around ₹9,000 crore in 1998 to approximately ₹55,000 crore in 2019. The ruling Bharatiya Janata Party (BJP) was estimated to have accounted for 45–55 percent of total expenditure in 2019, compared with about 20 percent in 1998. The report concludes that excessive spending undermines electoral fairness, deepens corruption, and entrenches the “vote-for-note” culture, while citizen-based donations and transparent funding have steadily declined.

The report recommends stronger oversight of political finance, mandatory affidavits from candidates pledging not to distribute inducements, greater public disclosure of poll expenditure data, and institutional reforms such as state funding of elections. It also calls for enhanced media accountability and civil society engagement to foster informed debate on campaign finance reforms.

In its conclusion, CMS characterises election expenditure as the “mother of all corruption,” arguing that unchecked spending distorts policy priorities, widens inequality, and weakens democratic institutions. The report has been cited by election reform advocates, policymakers, and research institutions, including the Association for Democratic Reforms (ADR) and the Election Commission of India, in ongoing debates on transparency, corporate funding, and the future of state support for elections.

REFORMING ELECTION FUNDING-Namit Oberoi (NUJS LAW REVIEW)

The Analysis of Contribution Reports of Electoral Trusts for FY 2023-24, published by the Association for Democratic Reforms (ADR), provides an in-depth examination of the financial contributions made to political parties in India through registered electoral trusts. The study draws upon reports submitted to the Election Commission of India (ECI) by 15 of the 19 registered trusts under the Electoral Trusts Scheme, 2013. It highlights significant trends in political funding, corporate influence, and transparency gaps in the electoral financing framework.

According to the report, only six of the fifteen reporting trusts received any donations during FY 2023-24, collectively amounting to approximately ₹ 1,218.40 crore. Nearly all of this amount—₹ 1,218.36 crore—was distributed among political parties. Corporate entities contributed about ₹ 1,179.23 crore, while 31 individuals together donated around ₹ 39.17 crore. The Prudent Electoral Trust emerged as the dominant player, receiving and disbursing the majority of funds, with contributions totaling ₹ 1,075.72 crore.

The analysis reveals a significant concentration of donations among a few large corporate donors. Companies such as ArcelorMittal Nippon Steel India Ltd, DLF Ltd, and Haldia Energy Ltd made some of the largest individual contributions. Similarly, the distribution of funds was highly skewed toward one political party. The Bharatiya Janata Party (BJP) received approximately ₹ 856.46 crore (70% of total disbursements), followed by the Indian National Congress (INC) with ₹ 156.40 crore (13%). Several regional parties—including the Bharat Rashtra Samithi (BRS), YSR Congress Party (YSRCP), and Telugu Desam Party (TDP)—received relatively minor shares.

ADR’s review raised concerns regarding transparency and compliance, noting that nine trusts reported no contributions and four did not file reports at all. The organization recommended stricter enforcement of reporting requirements, improved scrutiny of trust registrations, and mandatory corporate disclosures in annual statements. It further called for the Election Commission to ensure proactive public access to political funding data.

Overall, the report underscores the growing reliance of Indian political parties on electoral trusts as major funding channels, while pointing to the need for stronger regulatory mechanisms to ensure transparency, accountability, and equitable access to financial resources across the political spectrum.

State Funding of Elections and Political Parties- Subhash C. Jain

The report State Funding of Elections and Political Parties in India undertakes a comprehensive analysis of the concept, feasibility and international practise of state-funding of elections, with a particular focus on the Indian context. It begins by mapping the evolution of electoral finance in India, highlighting the growing concern over “money-power” in Indian elections, the escalating costs of campaigns, and the need to ensure a level playing field for political parties. Drawing on earlier commissions and committees such as the Law Commission of India (1999) and the Indrajit Gupta Committee (1998), the report outlines how these bodies recommended partial or full public funding—ideally accompanied by robust regulatory mechanisms for parties and disclosure systems.

In its central sections, the report examines models of state funding adopted in other democracies, drawing lessons for India. It contrasts direct monetary grants to candidates or parties with indirect in-kind support (free media time, subsidised travel, free use of public venues), and argues that regardless of the form, the goal is to reduce the reliance on private donations which may skew political competition. The report also explores the obstacles in the Indian context - including the limited tax base, high poverty rates, and concerns that state funding without strict internal democratic controls of political parties might simply institutionalise existing party dominance.

Key findings of the report emphasise that implementing full state funding in India is currently unviable without first instituting stricter internal party reforms (accountability, auditing, disclosure, internal democracy). It notes that the economic situation and fiscal constraints limit the ability of the State to assume the entire cost of campaigning. The report recommends initiating partial state funding measures (for instance, non-monetary benefits or reimbursement of electoral expenses) that are phased in alongside regulatory reforms. It locates the issue of transparency as central: unless parties reduce their dependence on undisclosed or unaccounted funds, state funding alone will not ensure fairness.

The review section of the document further warns that while state funding can mitigate undue financial influence and level the competitive field between smaller and larger parties, it also carries risks: misuse of public funds, political parties losing accountability to their grassroots base if they rely excessively on state finance, and the possibility that it could become a tool of incumbency advantage if not designed impartially. In its conclusion the report argues for a hybrid model: modest direct funding plus strong regulatory oversight, mandatory disclosure of all donations, periodic audits of party accounts, and an independent institution to monitor compliance.

Overall, this report provides a well-documented and balanced evaluation of state funding of elections in India, situating the discussion in global practise while paying attention to India’s institutional and fiscal specificities. It stands as an important reference point in debates on political finance reform in India, especially insofar as it emphasises that reform of donations, disclosure and party regulation must precede or accompany any major shift toward funding by the State.

References

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