Electoral Trust Scheme and Basics About Electoral Trusts in India

In recent times, many of India’s biggest industrial houses have taken advantage of a new law to set up electoral trusts, hoping to make wavelets of their own by giving money to their favourite political parties. The legal framework for these trusts was introduced in January 2013, ostensibly with the idea of bringing transparency to the way campaigns are funded. For the first time, in this election private firms can donate money to political parties without any restriction—in exchange for disclosing what they have donated. Here is a brief information about electoral trusts.

What is the idea behind an Electoral Trust?

Election funding for political parties has always been a topic of discussion and there have been demands from various quarters to make the process more transparent.  The Finance Act of 2009 had set provisions for Electoral Trusts under the Income Tax Act 1961. Section 13B of the Act provides that the companies and entities looking to provide funding to political parties can set up non-profit companies, which mandatorily contain ‘Electoral Trust’ in their names. Any voluntary contributions received by an Electoral Trust shall not be included in the total income of the previous year of such Electoral Trust, if such Electoral Trust donates at least 95 percent of that money to registered political parties. This simply implies that tax benefits are available on funds given to political outfits through electoral trusts. The objective to bring transparency in the political funding and poll funding.

Definition of Electoral Trust

An Electoral Trust is a non-profit company established for orderly receipt of the voluntary contributions from any person (or company) for distributing the same to the respective political parties, registered under Section 29A of the Representation of People Act, 1951.

Such a company is registered under Companies Act comes under the purview of CBDT for tax matters.

Who can contribute to electoral trusts?

The electoral trust may receive voluntary contributions from –

• An individual who is a citizen of India
• a company which is registered in India and
• a firm or Hindu undivided family or an Association of persons or a body of individuals, resident in India.

Who shall not contribute to Electoral Trust?

The electoral trust shall not accept contributions-

• From an individual who is not a citizen of India or
• from any foreign entity whether incorporated or not and
• from any other electoral trust which has been registered as a company under section 25 of the Companies Act, 1956 and approved as an electoral trust under the Electoral Trusts Scheme, 2013.

Appraisal of the Electoral Trusts

An approved electoral trust can receive voluntary contributions and distribute the same to the political parties. Thus, the work of the trust is only two fold. Receive it and donate it to political parties. No other work or business is allowed. One trust cannot donate to other. The electoral Trusts Scheme is relatively new scheme and is part of the ever going electoral reforms in the country. The scheme brings in more transparency in the funds provided by corporate entities to the political parties for their election-related expenses.

This scheme has been welcomed by companies and corporate mainly due to its simplicity and tax benefits. Currently, there are more than 15 electoral trusts in India and this count must have become larger with the conclusion of the General Elections. The major groups which have registered their electoral trusts include Mahindra group, Anil Ambani-led Reliance Group, Anil Agarwal-led Vedanta Group, Sunil Mittal-led Bharti Group and Kolkata-based K K Birla Group etc.