In 2024-25, BJP received ₹6,088 crore, with Prudent Electoral Trust contributing ₹2,668 crore; donations via trusts rose after electoral bonds were scrapped.
While BJP, JD(U), Samajwadi Party, and CPI(ML)L saw increased donations, parties like Congress, Trinamool, YSR Congress, BJD, and TDP recorded a decline.
What are Electoral Trusts?
Electoral Trusts are non-profit entities created to collect funds from donors and distribute them to eligible political parties in India.
Introduced in 2013 under The Electoral Trusts Scheme, 2013, these trusts aim to increase transparency in political funding and reduce reliance on unregulated or opaque contributions.
They have become a key channel for party funding, particularly after the abolition of electoral bonds in February 2024.
Key Features of Electoral Trusts
Set up by companies to distribute contributions collected from other companies and individuals to political parties.
The names of the trusts do not indicate the companies or groups that established them, ensuring neutrality.
Contribution reports and audit reports are submitted to the Election Commission of India annually.
Distributions are made proportionally to eligible political parties, maintaining fairness in allocation.
Eligible Donors: Indian citizens, Companies registered in India, Hindu Undivided Families (HUFs), Associations of persons residing in India
Ineligible Donors: Non-Indian citizen, Non-resident Indians without a passport number, Other electoral trusts, Contributors without PAN
Legal Framework of Electoral Trusts
Companies Act
Electoral trusts are established under Section 25 of the Companies Act, 1956, now incorporated under Section 8 of the Companies Act, 2013.
Only companies registered under Section 8 can apply for approval to operate as an electoral trust.
These trusts are non-profit entities, and their primary objective is to collect and distribute contributions to political parties.
Income Tax Act, 1961
Section 17CA permits donations to electoral trusts from:
Indian citizens
Companies registered in India
Hindu Undivided Families (HUFs)
Firms
Associations of persons residing in India
Donors must provide PAN (Permanent Account Number) for residents or passport number for NRIs.
Donations made through electoral trusts are eligible for tax deductions under Section 80GGC.
Electoral Trusts Scheme, 2013
Specifies eligibility criteria, registration procedure, and operational guidelines for electoral trusts.
Requires trusts to distribute at least 95% of the total funds collected in a financial year to eligible political parties.
Allows trusts to retain a maximum of 5% of funds for administrative expenses.
Trusts must renew their registration every three financial years to continue operations.
Central Bureau of Direct Taxes (CBDT)
The CBDT is a statutory authority under the Central Board of Revenue Act, 1963, functioning within the Department of Revenue, Ministry of Finance.
It supervises the functioning of electoral trusts, ensures compliance with tax provisions, and approves their registration.
Funding and Distribution Mechanism of Electoral Trusts
Electoral trusts collect contributions from eligible donors and distribute the funds to political parties registered under the Representation of the People Act, 1951.
At least 95% of the total funds, including any surplus from previous years, must be allocated to political parties.
Administrative expenses are limited to 5% of total funds.
Electoral trusts maintain full disclosure of donors and recipients to ensure transparency and accountability.
Differences Between Electoral Bonds and Electoral Trusts
Feature
Electoral Bonds
Electoral Trusts
Regulation
Regulated by RBI, SBI, and Election Commission
Regulated under Companies Act, monitored by ECI and CBDT
Purpose
Streamline donations while maintaining donor anonymity
Aggregate donations and ensure transparency
Tax Benefits
Eligible for deduction under Section 80GGC
Eligible for deduction under Section 80GGC
Operational Mechanism
Donated directly to political parties via bonds
Trust collects funds and distributes them to political parties
Donor Disclosure
Donor identities remain undisclosed
Donor identities are publicly disclosed
Transparency
Limited transparency; potential for undisclosed corporate influence
Full transparency through public disclosure of donors and recipients
Q. Consider the following statements about the differences between Electoral Bonds and Electoral Trusts in India: 1. Electoral Bonds maintain donor anonymity, whereas electoral trusts require public disclosure of donor identities. 2. Both Electoral Bonds and Electoral Trusts are eligible for tax deductions under Section 80GGC. 3. Electoral Bonds are regulated under the Companies Act, while Electoral Trusts are regulated by RBI and SBI.
Which of the statements given above is/are correct? (a) 1 and 2 only (b) 2 and 3 only (c) 1 and 3 only (d) 1, 2 and 3
Answer: (a) 1 and 2 only
Explanation: Statement 1 is correct: Donor identities are disclosed in electoral trusts but remain anonymous in electoral bonds. Statement 2 is correct: Donations under both mechanisms are eligible for tax deductions under Section 80GGC. Statement 3 is incorrect: Electoral Bonds are regulated by RBI, SBI, and Election Commission, while Electoral Trusts are regulated under the Companies Act and monitored by ECI and CBDT.
