Electoral Trust

Electoral Trust is a non-profit organisation established in India with the purpose of receiving voluntary contributions from individuals and companies and distributing these funds to political parties in a transparent manner. The concept was introduced to bring greater accountability and transparency to political funding and to curb the influence of black money and undisclosed donations in elections.
Electoral Trusts act as intermediaries between donors and political parties, ensuring that all donations are made through legitimate, traceable, and lawful means.

Background and Introduction

Political funding in India has long been a matter of concern due to the lack of transparency in contributions to political parties. In the early 2000s, the government began exploring mechanisms to regulate and monitor donations.
The Electoral Trust Scheme was first introduced by the Central Board of Direct Taxes (CBDT) through guidelines issued in 2003, under the Income Tax Act, 1961. These guidelines were later revised and strengthened in 2013 to enhance accountability and prevent misuse.
The 2013 scheme made it mandatory for all electoral trusts to be non-profit entities approved by the CBDT and to distribute at least 95% of the total contributions received in a financial year to registered political parties.
The scheme aligns with India’s democratic values by promoting clean and transparent political financing while discouraging cash-based or unverified donations.

Objectives of Electoral Trusts

The main objectives behind the creation of Electoral Trusts are:

• To ensure transparency in political donations.
• To encourage legitimate corporate and individual contributions to political parties.
• To eliminate the use of unaccounted money in electoral processes.
• To create a structured and auditable channel for political funding.
• To enhance public confidence in the integrity of the democratic system.

Legal Framework

Electoral Trusts operate under the following statutory and regulatory provisions:

1. Section 13B of the Income Tax Act, 1961 – Governs the tax treatment of donations made through approved electoral trusts.
2. Income Tax (Tenth Amendment) Rules, 2013 – Defines the conditions for registration, functioning, and reporting obligations of electoral trusts.
3. Representation of the People Act, 1951 – Mandates political parties to maintain records of donations and file annual contribution reports.
4. Companies Act, 2013 (Section 182) – Allows companies to contribute to political parties within prescribed limits and through authorised channels such as electoral trusts.

These provisions together ensure that contributions routed through electoral trusts are legal, verifiable, and subject to regulatory oversight.

Structure and Functioning

An Electoral Trust is typically registered as a non-profit company under Section 8 of the Companies Act, 2013. It functions as a neutral conduit between donors and political parties.
The general operational structure includes:

1. Collection of Donations: Electoral trusts receive voluntary contributions from individuals and companies via cheque, demand draft, or electronic transfer. Cash donations are prohibited.
2. Record Keeping: The trust maintains detailed records of every donor and the corresponding amount contributed.
3. Distribution: At least 95% of the total funds collected in a financial year must be distributed to registered political parties before the end of the subsequent financial year.
4. Disclosure: The trust submits annual reports to the CBDT, disclosing donor details, the total amount received, and the distribution made to political parties.
5. Audit and Compliance: Accounts are audited annually, and the trust must comply with conditions specified by the Income Tax Department to retain its approval status.

Eligibility and Registration

To qualify as an electoral trust:

• The entity must be a non-profit company registered under Section 8 of the Companies Act.
• It must apply to the CBDT for approval, furnishing its memorandum of association, articles of association, and details of trustees.
• The trust’s objectives must explicitly state that it exists solely to distribute contributions to political parties.
• It cannot accept contributions from foreign sources, government companies, or unidentifiable individuals.

Only after CBDT approval can an electoral trust legally receive and distribute political donations.

Conditions and Restrictions

The 2013 guidelines specify several key conditions for operation:

• Donations must be made only through account payee cheques, demand drafts, or electronic transfers.
• The trust must not accept contributions in cash.
• The identity of every donor and recipient political party must be maintained and disclosed.
• The trust must not distribute funds selectively or based on profit motives.
• A minimum of 95% of contributions received must be distributed each year.
• No political party can receive donations directly from a corporate donor through the trust without full disclosure.

These restrictions ensure that electoral trusts operate transparently and cannot serve as fronts for unrecorded or illicit political financing.

Examples of Electoral Trusts in India

Several major corporate houses have set up registered electoral trusts to contribute to political parties lawfully. Examples include:

• Prudent Electoral Trust (formerly Satya Electoral Trust)
• AB General Electoral Trust
• Jankalyan Electoral Trust
• Paribartan Electoral Trust
• People’s Electoral Trust

Among these, Prudent Electoral Trust is one of the largest, distributing significant portions of its donations to major national political parties.

Transparency and Disclosure Requirements

Transparency is a cornerstone of the electoral trust system. The key disclosure mechanisms include:

• Annual submission of audited accounts to the CBDT.
• Disclosure of the names of donors contributing above ₹20,000.
• Declaration of the political parties to which funds have been distributed and the amount given to each.
• Mandatory reporting of contributions by both the trusts and recipient political parties to the Election Commission of India (ECI).

These disclosures are made public through ECI reports, enabling citizens and civil society organisations to scrutinise the flow of political funds.

Advantages of Electoral Trusts

The establishment of electoral trusts offers several significant advantages:

• Enhanced Transparency: All transactions are traceable, reducing the scope for anonymous or illegal donations.
• Accountability: Regular audits and reporting ensure adherence to statutory norms.
• Encouragement of Clean Funding: Corporate entities can contribute confidently within legal limits.
• Reduction of Corruption Risks: Discourages cash-based political financing and use of black money.
• Public Confidence: Promotes trust in democratic and electoral processes by making funding visible and regulated.

Criticisms and Limitations

Despite their intended transparency, electoral trusts have faced criticism on several grounds:

• Limited Public Disclosure: Donor details are disclosed to regulatory authorities but not always made easily accessible to the public.
• Concentration of Donations: A few large trusts and corporate donors dominate political contributions, raising questions of influence.
• Lack of Uniformity: Different trusts follow varied practices in fund allocation, sometimes perceived as politically motivated.
• Regulatory Gaps: Enforcement mechanisms for violations remain weak.
• Overlap with Electoral Bonds: Since the introduction of electoral bonds in 2018, the relevance and functioning of electoral trusts have been partly overshadowed.

Relation to Electoral Bonds

While electoral trusts were the first major step towards clean political funding, the electoral bonds scheme (2018) further expanded the framework by introducing bank-issued bearer instruments for political donations.
However, unlike electoral trusts, the electoral bond system allows donor anonymity, which has generated debates about transparency. Electoral trusts, in contrast, are relatively more open and auditable, since donor identities and transaction details are recorded with authorities.

Conclusion

Electoral Trusts represent an important institutional innovation in India’s democratic framework, designed to ensure transparency, accountability, and integrity in political finance. They provide a structured, lawful, and verifiable mechanism for channelising political contributions while curbing the influence of unaccounted money in elections.