Explained | What are electoral trusts and how do they work?

The BJP received Rs 351.50 crore, which is nineteen times more donations than the Congress in 2021-22 from electoral trusts, according to ADR data. On the contrary, Congress’s donation is less than that received by the TRS, Samajwadi Party, AAP and YSR Congress.

Who donates this money to political parties and how do electoral trusts actually work? Let’s try to understand.

Also Read | BJP cashes in Rs 351 crore from Electoral Trusts while Cong got meagre Rs 18.44 crore: ADR

1. What are electoral trusts?

These are trusts set up by companies with the objective to distribute the contributions received from other companies and individuals to the political parties. The companies which are registered under section 25 of the Companies Act, 1956 are only eligible to make an application for approval as an electoral trust, according to the ADR report.

The names of electoral trusts, currently, do not indicate the name of the company/group of companies which set up the trusts.

2. Who can and who cannot contribute to electoral trusts?

Who can:
An individual who is a citizen of India
A company registered in India
An association of persons (Indian residents)

Who cannot:
An individual who is not a citizen of India
Other electoral trusts (approved under the Electoral Trusts Scheme)
Contributors without PAN
NRIs without a passport number

3. Procedure while collecting money from contributors?

The electoral trusts are required to issue a receipt to the contributor. Along with this, Trusts record the following information?
1. Name and address of the contributor.
2. PAN of donor/ passport number in case of NRI.
3. Amount and mode of contributions (with name and branch of Bank, date of receipt of donation).
4. Name of electoral trust.
5. PAN of electoral trust.
6. Date and number of approval by CBDT. (vii) Name and designation of the person issuing the receipt.

4. How are funds distributed by electoral trusts?

For administrative expenses, the electoral trusts are permitted to set aside a maximum of 5 per cent of the total funds collected during a financial year. The remaining 95 per cent of total income of the trusts including any surplus from the previous financial year is required to be distributed to eligible political parties.

6. What Laws/Rules govern the creation and functioning of electoral trusts?

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

The Central Government, also launched ‘The Electoral Trusts Scheme, 2013 which specified the eligibility and procedure for registration as an electoral trust apart from laying down the format for their registration.