Electoral bonds were introduced in 2018 when the NDA government published the Electoral Bond Scheme 2018.

An intention after this electoral bond program was to ensure and track the donations made to a political party in the balance sheet that ultimately would monitor the usage of black money used for funding elections wherein the funding would otherwise come from drawing off money from businesses that would not be easy to monitor.

Electoral bonds are interest-free financial instruments in the nature of Promissory notes that can be purchased by any Indian citizen or entity established in India from selective branches of the State bank of India. It is a financial tool used in order to execute donations to political parties.

Such a financial instrument does not carry any information in regards to the buyer and holder of the instrument. Such bonds are similar to banknotes that are payable to the bearer on demand and are interest-free. Issuance of electoral bonds is processed either digitally or in cheque format.

Electoral bonds are sold in multiples of Rs. 1,000 , Rs. 10,000, Rs,1 lakh, Rs. 10 lakh, and Rs, 1 crore and it is only the State bank of India entitled to sell these bonds.

A person or any other entity buying these bonds can donate to the political party or any other individual at their will. On receipt of the bonds, the receiver encashes the bonds through the sender’s verified account and the bond validity lasts only for 15 days.

However, the time zone for purchasing electoral bonds is 10 days at the beginning of each quarter as specified by the government.

Electoral bonds are taxable for the donor and they are tax exempted for the receiver considering the returns are filed by the receiving party.

However, the Election Commission of India encountered the bottleneck in the electoral bonds wherein it suggested the government of full disclosure and transparency in regards to anonymous donations made to the political parties. The Reserve bank of India also warned the government that such bonds would encourage money laundering.