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Electoral Trust

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Electoral Trust is a Section 25 Company or a non-profit company created in India for orderly receipt of the voluntary contributions from any person and for distributing the same to the respective political parties, registered under Section 29A of the Representation of People Act, 1951.


Objective

The objective of the Electoral Trust is not to earn any profit or pass any direct or indirect benefit to its members or contributors. The sole objective is to distribute the contributions received by it to the political party concerned. This is a mechanism for bringing transparency and sanity in the political party funding.

By routing the political contributions through an electoral trust, companies can escape from the dislikes of any political party to which it has not donated.


Functioning

Electoral Trust can raise funds from Indian citizens and domestic companies which are registered in India and also from a firm or Hindu Undivided Family[1] or an Association of persons or a body of individuals, who are resident in India. The electoral trust cannot accept any contribution without the permanent account number (PAN) of the contributor, who is a resident and the passport number in the case of a citizen of India, who is not a resident.

The electoral trust cannot accept contributions from non-citizens, other electoral trust or government companies or from any other foreign sources or from any foreign entity whether incorporated or not. They cannot take contributions in cash.

An electoral trust is required to distribute at least 95% of the total contributions received during the financial year along with the surplus brought forward from earlier financial year to the eligible political parties before 31st March of the said financial year. Electoral Trust cannot use the contributions to the benefit of its own members or contributors directly or indirectly.


Recognition of Electoral Trust

The Central Government amended the Income Tax Rules, 1962 on the 31 January, 2013 to insert Rule 17CA to list the functions of Electoral Trusts which are approved by the Central Bureau of Direct Taxes (CBDT).

Central Board of Direct Taxes (CBDT) notified(Notification No. 9/2013/SO 309(E)), the operational guidelines- Electoral Trust Scheme 2013- on 31 January 2013, to lay down a procedure for grant of approval to an electoral trust. It is mandated that such electoral trusts have to be registered as a Section 25 Company and should bear the phrase “electoral trust” in its name. In the new Companies Act 2013, provisions corresponding to Section 25 are given at Section 8.

The electoral trust will have to apply to CBDT on or before 31 July of the previous year relevant to the assessment year for which the approval is sought. Approval may be given for one year or 3 years at a stretch, as specified in the approval communication. Approval can be withdrawn by the CBDT if it is satisfied that the Electoral Trust ceased to exist, or is not genuine or have not complied with the specified conditions. CBDT is empowered to call for information from the electoral trust.


Fund raising by political parties

At present, there is no direct state funding of political parties in India. However, there are some other benefits granted to political parties like,

  1. Providing free electoral rolls to the candidates and recognised political parties,
  2. Providing free air time to the recognised political parties on state owned media,
  3. Providing free space in state capitals for the office of the recognised political parties; and
  4. Tax exemption on the income of the political parties.

Section 29B of the Representation of People Act, 1951, provides that subject to the provisions of the Companies Act, every political party may accept any amount of contribution voluntarily offered to it by any person or company other than a Government company. Here the word “person” does not include Government company, local authority or artificial juridical person wholly or partiallyfunded by the Government.

Further, no political party shall be eligible to accept any contribution from any foreign source defined under the Foreign Contribution (Regulation) Act, 2010. The Citizen’s charter issued by the Ministry of Home Affairs has clarified that foreign contribution cannot be accepted by a candidate for election, member of any legislature, political party or office bearer thereof.

Section 182 of the Companies Act, 2013 specifies that a company which has been in existence for more than three years can contribute to political parties upto 7.5% of its average net profit earned during the three immediately preceding financial years, provided the same is approved through a resolution passed at a meeting of the Board of Directors of the Company. A company can also make contributions within the above limits and restrictions to Electoral Trusts.

The political parties are required to submit a report on the contribution received in excess of Rs. 20,000/- from any person or company or entity to the Election Commission of India under Section 29C of the Representation of the People Act 1951, before the due date of filing of Income Tax Return.

In addition, the Election Commission of India (ECI), on 6 June 2014, issued Guidelines to all those CBDT recognized Electoral Trusts to submit to the Commission an Annual Report containing details of the contributions it received and the donations it gave to political parties, apart from an audit report.


Tax treatment of political contributions

The tax treatment for the contributions made by companies and persons / individuals for political party funding is specified in Section 80GGB and Section 80GGC, respectively of the Income Tax Act,1961.

In case of an Indian company,any sum contributed by it in the previous year to any political party or an electoral trust shall be deductible from the income tax liability. Same is the case for any contributing “person”, provided, the person is not a local authority or artificial juridical person wholly or partly funded by the Government.

However, no deduction shall be allowed in respect of any sum contributed by way of cash.This provision was made to the Income Tax Act, vide the Finance Act, 2013, with effect from 1-4-2014.


Data

The list of Section 8 Companies (or Section 25 companies as per erstwhile Companies Act of 1956) including electoral trust are maintained by Ministry of Corporate Affairs. The list as on 31 March 2015 may be seen here.

Those electoral trusts which are recognised by the CBDT, and their contribution reports are maintained by the Election Commission of India and can be seen here.


1. The term 'Hindu Undivided Family' has not been defined under the Income Tax Act. It is defined under the Hindu Law as a family that consists of all persons lineally descended from a common ancestor, including wives and unmarried daughters. A HUF cannot be formed by a group of people who do not constitute a family; lineal descendents with a common ancestor is a must. Even though Jain and Sikh families are not governed by the Hindu law, they can still be treated as a HUF. A HUF gets created the moment a person marries. (Source: knowledge.icsi.edu presentation by by Nikhil Agarwal & Sudhir Saklani)

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