CA Topic

Electoral Trusts

December 23, 2025 en

Brief Context

Context With the scrapping of the electoral bonds scheme, companies have again turned to electoral trusts as a preferred source of political donations for companies in 2024-25. Electoral Trust Scheme The electoral trust scheme was introduced by the government in 2013. Electoral trusts are one of the funding channels for political parties.

Source Content

Syllabus: GS2/Polity & Governance

Context

With the scrapping of the electoral bonds scheme, companies have again turned to electoral trusts as a preferred source of political donations for companies in 2024-25.

Electoral Trust Scheme

The electoral trust scheme was introduced by the government in 2013.
Electoral trusts are one of the funding channels for political parties.
- They became a preferred source of political donation for companies in 2024-25 after the SC scrapped the electoral bonds scheme in 2024.
- Both schemes are meant to facilitate donations to political parties by corporations and individuals.
It is regulated by the Central Board of Direct Taxes (CBDT) under the Electoral Trust Scheme, 2013.
Eligibility for Electoral Trust and Donations: Any company registered under the Companies Act can form an electoral trust.
Any citizen of India, a company registered in India, or a firm or Hindu Undivided Family or association of persons living in India, can donate to an electoral trust.

How many electoral trusts does India have?

While just five trusts reported contributions in 2023-24, the number increased to nine in 2024-25.
Of these nine, three trusts — Prudent Electoral Trust, Progressive Electoral Trust and New Democratic Electoral Trust — accounted for 98 per cent of all contributions in 2024-25.

How do These Trusts Function?

Renewal Requirement: Electoral trusts must apply for renewal every three financial years to continue operating.
Eligible Beneficiaries: Donations can be made only to political parties registered under Section 29A of the Representation of the People Act, 1951.
Mandatory Disbursement Rule: At least 95% of total contributions received in a financial year must be donated to eligible political parties.
- The remaining 5% may be used only for administrative expenses.
Disclosure of Donor Identity: PAN is mandatory for resident Indian contributors.
- Passport number is required for NRIs at the time of contribution.
Mode of Contribution: Trusts receive voluntary contributions from Indian citizens, domestic companies, firms, or Hindu Undivided Families (HUFs) via cheques, bank drafts, or electronic transfers.
Transparency: The electoral trust route is fully transparent, with disclosure of both contributors and beneficiaries, unlike electoral bonds.
Use of Funds: Trusts cannot use donations for the benefit of their members or any purpose other than permitted administrative expenses and political contributions.
Accounting & Oversight: Trusts must maintain audited accounts, disclosing donors, recipients, and disbursements to the CBDT and the Election Commission of India (ECI).

Electoral Bonds

– Government of India notified the Electoral Bond scheme in 2018.
– An electoral bond is like a promissory note that can be bought by any Indian citizen or company incorporated in India from select branches of State Bank of India.
a. The citizen or corporate can then donate the same to any eligible political party of his/her choice.
– Anonymous Donation: The electoral bonds will not bear the name of the donor. Thus, the political party might not be aware of the donor’s identity.
– Tax exemption: A donor will get a deduction and the recipient, or the political party, will get tax exemption, provided returns are filed by the political party.
– The Supreme Court has struck down the Electoral Bonds Scheme, the Scheme is violative of the Right to Information under Article 19(1)(a).
a. They also infringe on the principle of free and fair elections as stipulated in the constitution.
– While the electoral bonds scheme sought to ensure donor anonymity, electoral trusts are required to report to the Election Commission contributions from individuals and companies, and their donations to parties every year.

Source: IE