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Donation to Political Parties


Donation to Political Parties

Political parties are allowed to receive contributions from Indians under the Representation of People’s Act. On receiving contributions, according to Section 29B of the Representation of People’s Act, every political party is required to acknowledge contribution offered to it by any person or company on a voluntary basis, other than that of a Government company. Further, no political party permits to accept any contribution from a foreign source as defined under the terms of Section 2 of the Foreign Contribution (Regulation) Act, 1976. In this article, we look at the regulations pertaining to the donation and contributions made to political parties. 

Representation of People’s Act

As per the Representation of People’s Act, political parties require to declare the details of the contribution received over Rs. 20,000 and prepare a report for the same in each financial year. Contribution from individuals, businesses, not-for-profit, etc., must all be reported to the Election Commission of India. The list of donations must provide the names, address and details of the donor. In case a political party fails to submit the report, the party would disentitle from obtaining any tax relief.

Companies Act, 2013

For a company to make donations to a political party, the company should be in continuation for a minimum period of three years, as per Companies Act, 2013. In addition, companies can donate only up to 7.5% of its profit in a year and are required to disclose the amount of donation in its profit and loss account.

Further, as per the MOA/AOA, a donation to a political party may require the authorization of the Board of Directors by means of a resolution. If a company is violating any of the provisions of this section, the company will be punishable with fine which may perhaps extend to five times the amount so contributed; and each officer of the company involving in such violation will be punishable with imprisonment for a term which may perhaps extend to six months and will also be liable to fine of five times the amount contributed.

Hence, it is important to verify the MOA and AOA for the company prior to making any political contributions.

Electoral Trusts Scheme, 2013

The government has enacted the ‘Electoral Trusts Scheme, 2013’ for the reason for streamlining the process of funding and to guarantee the transparency of corporate funding to the political parties’ poll expenses. According to the terms of this scheme, Electoral Trust companies grants tax benefits in proportion to the funds they provided to a range of political outfits.

The Ministry of Corporate Affairs has altered its ‘Name Availability Guidelines’ for the companies to permit registration of non-profit companies. Section 8 companies registered as Electoral Trusts are required to have the phrase ‘Electoral Trust’ before their names and get registered, so as to distinguish them from other companies, as permitted under Companies Act, 2013. Further, promoters of an Electoral Trusts require to provide an affidavit that they would be limited only for the reason of registration of companies under the terms of the Electoral Trust Scheme of Central Board of Direct Taxes.

Electoral Trust companies permit tax benefits on one condition, i.e. merely if they distribute 95% of total contributions received by them in any financial year to the registered political parties during that year itself. Finally, Electoral Trust companies permit to accept contributions from foreign citizens or companies. Such companies also require to take the PAN number of all contributors who were resident Indians.