What is Electoral Trusts?
Historical Background
Key Points
8 points- 1.
An Electoral Trust must be registered as a non-profit company under Section 25 (now Section 8) of the Companies Act, 2013.
- 2.
It must be registered with the Central Board of Direct Taxes (CBDT).
- 3.
The trust must distribute 95% of the total contributions received in a financial year to eligible political parties within the same financial year.
- 4.
Contributions can be received from Indian citizens and companies registered in India.
- 5.
Donations to Electoral Trusts are eligible for 100% tax deduction under Section 80GGB (for companies) and 80GGC (for individuals) of the Income Tax Act, 1961.
- 6.
Trusts are required to submit an annual report to the Election Commission of India (ECI) detailing contributions received and disbursed, including the names of donors and recipient parties.
- 7.
Only political parties registered under Section 29A of the Representation of the People Act, 1951, and having secured at least 1% of the votes polled in the last general election or assembly election, are eligible to receive funds.
- 8.
The scheme aims to consolidate corporate donations and channel them transparently to political parties.
Visual Insights
Functioning of Electoral Trusts in India
This flowchart illustrates the step-by-step process of how Electoral Trusts operate, from receiving contributions to disbursing them to political parties, emphasizing their role in channeling corporate donations transparently.
- 1.Formation: Registered as Section 8 Company (Non-Profit) under Companies Act, 2013
- 2.Registration: With Central Board of Direct Taxes (CBDT)
- 3.Contributions: Receive funds from individuals & corporate entities (Indian citizens/companies)
- 4.Tax Benefit: Donors get 100% tax deduction (Sec 80GGB/80GGC IT Act)
- 5.Distribution Mandate: Distribute 95% of corpus to eligible political parties within same FY
- 6.Recipient Parties: Registered under RPA, 1951, with ≥1% votes in last election
- 7.Disclosure: Annual report to ECI detailing donors & recipient parties
Electoral Bonds vs. Electoral Trusts: A Comparative Analysis
This table provides a side-by-side comparison of Electoral Bonds (now scrapped) and Electoral Trusts, highlighting their key features, legal frameworks, and implications for transparency in political funding.
| Feature | Electoral Bonds (Scrapped in Feb 2024) | Electoral Trusts (Active) |
|---|---|---|
| Purpose | Anonymous donations to political parties. | Channel corporate/individual donations to political parties with disclosure. |
| Legal Basis | Electoral Bond Scheme, 2018 (amended Finance Act 2017, Companies Act 2013). | Electoral Trust Scheme, 2013 (Companies Act 2013, IT Act 1961, RPA 1951). |
| Donor Anonymity | Complete anonymity for donors (identity not disclosed to party or public). | Donor identity disclosed to the Electoral Trust and subsequently to ECI (publicly available). |
| Recipient Disclosure | Political parties did not know the donor's identity. ECI published data post-SC order. | Political parties know the Electoral Trust, but not necessarily the original donor (if multiple donors to one trust). ECI publishes trust reports. |
| Issuing Authority | State Bank of India (SBI) only. | No specific issuing authority; trusts are private entities registered with CBDT. |
| Tax Benefit | 100% tax exemption for donors (Sec 80GGB/80GGC). | 100% tax exemption for donors (Sec 80GGB/80GGC). |
| Distribution Mandate | No specific mandate for parties to spend/distribute funds. | Trusts must distribute 95% of contributions to parties within the same FY. |
| Transparency Level | Low (due to anonymity), deemed unconstitutional by SC. | Higher (donor details disclosed to ECI), but concerns remain about ultimate beneficiary. |
| Current Status | Struck down as unconstitutional by Supreme Court in Feb 2024. | Active and gaining prominence as a legal channel for political funding. |
Recent Developments
4 developmentsPost the scrapping of the Electoral Bond Scheme in February 2024, Electoral Trusts have gained renewed prominence as a key legal channel for corporate political donations.
The news highlights that seven corporate houses contributed ₹2,107 crore to electoral trusts, making up 55% of the trusts' corpus, indicating their increasing role.
Increased scrutiny and debate on the transparency and effectiveness of Electoral Trusts, especially regarding the ultimate source of funds and potential influence.
The Election Commission of India (ECI) continues to publish annual audit reports of Electoral Trusts.