Electoral Trust

Electoral Trust is a non-profit organization formed in India for orderly receiving of the contributions from any person. Electoral Trusts are relatively new in India and is part of the ever-growing electoral restructurings in the country. Electoral Trusts are designed to bring in more transparency in the funds provided by corporate entities to the political parties for their election related expenses. The objective of an electoral trust is not to receive any profit or pass any direct or indirect advantage to its members or contributors. In this article, we look at the objectives and functions of an Electoral Trust.

Contributions to Electoral Trusts

Electoral Trust can receive contributions from various sectors. The following categories of persons can contribute to an Electoral Trust:

Indian citizens
Domestic companies which are registered in India
Firm or Hindu Undivided Family
Group of persons or individuals, who reside in India.

An Electoral Trust cannot accept contributions from:

Any person who is not an Indian Citizen.
Foreign Entity.
Any other Electoral Trust.

Procedure for Accepting Contributions

An electoral trust can accept contributions only by cheque, demand draft or account transfer to the bank. An Electoral Trust after receiving the contribution must allocate the same to the political parties. Thus, the job of the trust would be to merely receive it and donate it to the concerned parties. However, as already observed, they cannot donate to any other trust.

Receipt for Contribution

On receiving any contribution, an Electoral Trust must provide a receipt mentioning the following:

Name and address of the contributor.
Permanent account number of the contributor or passport number in the case of a citizen who is not a resident.
Amount and mode of contribution including name and branch of the Bank and date of receipt of such contribution.
Name the Electoral Trust.
Permanent account number of the Electoral Trust.
Date and number of approval by the prescribed authority.
Name and designation of the person issuing the receipt.

Electoral Trust Administration

An electoral trust can distribute funds only to the eligible political parties. However, the Electoral Trust can for the purposes of managing its affairs, spend up to 5% of the total contributions received in a year subject to an aggregate limit of Rs.5 lakhs in the first year of incorporation and a sum of Rs.3 lakhs in subsequent years.

Distributable Contributions

The total contributions received in any financial year along with the surplus from any earlier financial year, if any, on managing its affairs, will be the total amount of distributable contributions for the financial year. An electoral trust will be required to distribute the distributable contributions received in a financial year. Moreover, an Electoral Trust is required to distribute at least 95% of the total contributions received during the financial year along with the surplus brought forward from earlier financial years to the eligible political parties before 31st March of the concerned financial year.

Record Keeping

All electoral trust are required to keep and maintain a regular record of proceedings of all meetings and decisions taken, books of account and other documents in reference to its receipts, distributions, and expenditure. The Electoral Trust should also maintain a list of persons from whom contributions have been received and to whom the same have been distributed.

Auditing Records

Electoral Trust audit must be conducted and the audit report would be furnished in

Form No. 10BC along with its Annexure to the Commissioner of Income Tax or the Director of Income Tax as per its jurisdiction. All Electoral Trust are required to furnish a certified copy of the list of contributors and a list of political parties to whom sums were distributed.

Form 10BC

Form 10BC for Electoral Trusts is reproduced below for reference:

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Frequently Asked Questions

Common questions about Electoral Trust India: Transparent Political Funding System.

An Electoral Trust is a non-profit organization formed in India to facilitate the orderly receiving of contributions from individuals and entities for political parties' election-related expenses. Its primary objective is to bring more transparency to the funds provided by corporate entities to political parties.

According to the article, an Electoral Trust can receive contributions from Indian citizens, domestic companies registered in India, firms or Hindu Undivided Families, and groups of persons or individuals residing in India.

An Electoral Trust can accept contributions only by cheque, demand draft, or account transfer to the bank. After receiving the contribution, the trust must allocate the funds to the political parties it supports.

When receiving a contribution, an Electoral Trust must provide a receipt mentioning the contributor's name and address, their Permanent Account Number (PAN) or passport number, the amount and mode of contribution, the name and PAN of the Electoral Trust, the date and number of approval by the prescribed authority, and the name and designation of the person issuing the receipt.

An Electoral Trust can spend up to 5% of the total contributions received in a year, subject to an aggregate limit of ₹5 lakhs in the first year of incorporation and ₹3 lakhs in subsequent years, for managing its affairs.

The total contributions received in any financial year, along with any surplus from earlier financial years, after deducting the expenses for managing the trust's affairs, constitute the "distributable contributions" that must be distributed to eligible political parties.

An Electoral Trust is required to distribute at least 95% of the total contributions received during a financial year, along with any surplus from earlier years, to eligible political parties before March 31 of the concerned financial year.

An Electoral Trust must keep and maintain records of all meetings, decisions, books of account, and other documents related to its receipts, distributions, and expenditures. It must also maintain a list of contributors and the political parties to which funds were distributed.

The records of an Electoral Trust must be audited, and the audit report must be furnished in Form No. 10BC, along with its Annexure, to the Commissioner or Director of Income Tax within the trust's jurisdiction. A certified copy of the list of contributors and political parties to whom funds were distributed must also be provided.

Form 10BC is the prescribed form for Electoral Trusts to furnish their audit report, along with the Annexure containing the list of contributors and political parties to whom funds were distributed, to the Income Tax authorities.