Electoral Trust

Electoral Trust under Income Tax in India: All You Need to Know

Electoral Trusts have become an integral part of India’s political and electoral landscape. With the objective of bringing in more transparency in political funding, the concept of Electoral Trusts was introduced by the government. These trusts play a crucial role in channelizing the funds received from various business houses and individuals to political parties. This article aims to provide a comprehensive understanding of Electoral Trusts, their role under Income Tax laws in India, and the legal framework governing them.

Electoral Trust – An Overview

An Electoral Trust is a specific type of trust formed with the primary purpose of collecting and disbursing funds to various political parties and their candidates. These funds are contributed by corporate entities, thereby bringing in more transparency and accountability in political funding. The introduction of Electoral Trusts was a significant step towards curbing black money and non-disclosure of political funding sources.

Legal Framework

The concept of Electoral Trusts is governed by the provisions of the Income Tax Act, 1961. Section 13B of the Income Tax Act lays down the legal framework for Electoral Trusts. According to this section, any company willing to establish an Electoral Trust is required to fulfill certain conditions and comply with the prescribed rules and regulations.

The conditions specified under Section 13B include the following:

1. The Electoral Trust should be set up as a “company” under the Companies Act, 2013.

2. The primary activity of the Electoral Trust should be to distribute funds to political parties and their candidates as per the provisions of the Income Tax Act.

3. The trust should not engage in any other activity apart from the distribution of funds to political parties.

4. The trust should obtain approval from the Income Tax authorities for availing tax benefits.

Tax Benefits for Electoral Trusts

One of the key aspects of Electoral Trusts is the tax benefits available to them under the Income Tax Act. Section 80GGB and 80GGC of the Income Tax Act provide tax deductions to corporates contributing funds to Electoral Trusts. These deductions are available to the contributors based on the amount contributed to the Electoral Trust and are subject to the prescribed limits and conditions.

• Section 80GGB: This section allows for a tax deduction to Indian companies making contributions to Electoral Trusts. The deduction is available for the amount contributed to the trust, subject to a limit of 7.5% of the business profits.

• Section 80GGC: This section provides a tax deduction to individuals or any other person contributing funds to Electoral Trusts. The deduction is available for the amount contributed, subject to a limit of 10% of the individual’s gross total income.

Compliance and Reporting Requirements

Electoral Trusts are required to comply with certain reporting and disclosure requirements as specified under the Income Tax Act. The trust is required to maintain proper books of accounts, submit annual returns, and disclose the details of contributions received and funds disbursed to political parties.

As per the provisions of Section 13B, Electoral Trusts are mandated to file a return of income with the Income Tax authorities. The trust is also required to obtain approval from the Central Board of Direct Taxes (CBDT) for availing tax benefits.

Mode of Operation

Electoral Trusts operate as per the guidelines and regulations framed under the Income Tax Act. The trust receives contributions from corporate entities and individuals, which are then allotted to various political parties and their candidates. The funds received and disbursed by the trust are subject to rigorous scrutiny and compliance with the legal provisions.

The distribution of funds by Electoral Trusts is done based on the recommendations and decisions of the Board of Directors. The trust is required to maintain transparency in its operations and ensure that the funds are utilized for legitimate political activities.

Recent Developments

In recent years, there have been significant developments in the regulatory framework governing Electoral Trusts. The government has made amendments to the provisions of the Income Tax Act to further streamline the functioning of Electoral Trusts and enhance transparency in political funding.

The amendments introduced various compliance requirements and reporting norms for Electoral Trusts to ensure greater accountability and transparency in their operations. The overarching objective is to curb the menace of black money and undisclosed political funding.

Conclusion

The introduction of Electoral Trusts has been a crucial step towards bringing in more transparency and accountability in political funding. The legal framework governing Electoral Trusts under the Income Tax Act has played a pivotal role in regulating their operations and ensuring compliance with the prescribed rules and regulations.

Electoral Trusts, by virtue of their tax benefits, have gained significant traction among corporates and individuals contributing to political parties. The trust, along with its contributors and beneficiaries, is required to adhere to the legal framework and maintain transparency in their dealings to uphold the integrity of the political funding process.

In conclusion, Electoral Trusts stand as a critical instrument in shaping a more transparent and ethical political funding ecosystem in India. With the evolving regulatory landscape, Electoral Trusts are expected to play an even more significant role in the years to come, contributing to a cleaner and more accountable political funding mechanism.