Electoral Trusts for Political Funding

Following the Supreme Court’s scrapping of the electoral bonds scheme in February 2024, electoral trusts have become the primary transparent route for large-scale political funding.

What Are Electoral Trusts?

• Electoral trusts are non-profit companies set up in India specifically to receive voluntary political donations from individuals and Indian companies. 
• The Electoral Trusts then distribute those funds to registered political parties in a regulated and transparent manner.
• Introduced in 2013 by the UPA government through a notified scheme.
• Preceded the electoral bonds scheme, which was introduced in 2018 by the NDA government.
• Purpose: To facilitate donations to political parties from corporations and individuals.

Surge in Contributions Post-Electoral Bonds

• In 2023-24: Only 5 trusts reported total contributions of Rs 1,218.36 crore.
• In 2024-25: 9 trusts reported contributions, surging to Rs 3,811 crore.
• This marks a significant increase as companies sought alternative donation routes after the anonymity of electoral bonds was ended.

Who Can Form an Electoral Trust?

• Any company registered under Section 8 of the Companies Act, 2013 (typically non-profit companies).
• The scheme was notified on January 31, 2013.

Who Can Donate to Electoral Trusts?

• Under Section 17CA of the Income Tax Act, 1961:
  • Indian citizens
  • Companies registered in India
  • Firms, Hindu Undivided Families (HUFs), or associations of persons based in India.
• Donations must be made via cheque, bank draft, or electronic transfer (no cash allowed).
• Donors must provide their PAN (for residents) or passport number (for NRIs).

How Do Electoral Trusts Function?

• Renewal: Must apply for renewal every three financial years.
• Distribution Rule: At least 95% of contributions received in a year must be donated to registered political parties (under the Representation of the People Act, 1951).
• Administrative Expenses: Up to 5% can be used for running the trust.
• Prohibitions: Funds cannot be used for the benefit of trust members.
• Transparency Requirements:
• • Maintain audited accounts.
  • Submit annual reports to the Election Commission of India (ECI) and Central Board of Direct Taxes (CBDT).
  • Disclose full details of donors, amounts, and recipient political parties.

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How Electoral Trusts Offer Transparency?

• Unlike the scrapped electoral bonds (which ensured donor anonymity), electoral trusts provide clear visibility into:
  • Who donates (individuals/companies)
  • How much they donate
  • Which political parties receive the funds
• This makes them a more accountable alternative for political funding in India.

Legal Status of Election Funding in India

• Election funding in India is governed by the Representation of the People Act (RPA), 1951, the Income Tax Act, 1961, and the Companies Act, 2013
• Permitted Sources: Under Section 29B of the RPA, 1951, political parties can accept voluntary contributions from individuals (Indian citizens) and domestic companies. 
  • Foreign donations are prohibited under the Foreign Contribution (Regulation) Act, 2010.
• Corporate Donations: Governed by Section 182 of the Companies Act, 2013, companies must be at least three years old and can make political donations.
• Disclosure Requirements: Under Section 29C of the RPA, 1951, parties must report to the ECI details of donations exceeding ₹20,000 per donor annually.
  • Donations below ₹20,000 need not disclose donor identities, leading to a portion of income from “unknown sources.”
• Electoral Bonds Scheme: Introduced in 2018 for anonymous donations. 
  • It was declared unconstitutional by the Supreme Court of India on February 15, 2024 (in Association for Democratic Reforms v. Union of India). 
• No Limits on Donations: There are no caps on individual or corporate donations to parties.
• Prohibitions: No donations from government companies or foreign sources.

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