He said people used to say that if corruption is to be eradicated from the country, then the exercise should start from political parties.
"There is corruption in politics because of our electoral funding mechanism... There is no transparent mechanism for electoral funding.... Is a very big challenge in front of the country to cleanse the political funding," Mr Jaitley said at an event in New Delhi.
He said the present NDA government has ended discretion in allocation of natural resources as Prime Minister Narendra Modi wanted every resource be allocated through transparent market mechanisms.
"In the coming days, we will come out with mechanism for electoral bonds which will ensure only tax-paid money comes into the political system. We have moved much ahead in this," Mr Jaitley said.
In a major move aimed at promoting transparency in political funding, Finance Minister Jaitley had in this year's Budget speech announced capping of anonymous cash donations to political parties at Rs 2,000 and introduced electoral bonds.
The bonds will not carry the name of the donor.
In March, during a debate in Parliament, the Finance Minister had invited suggestions from political parties to make electoral funding more clean and transparent.
"I have an open invitation to all, please suggest to me a better system which will ensure clean money and transparency to the extent possible. I am yet to receive a single suggestion.
"I am only hearing adjectives like 'it must be clean', 'it must be transparent'. Please give me ideal combination of the two. We are willing to consider it. I will wait for a specific suggestion," Mr Jaitley had said.