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Electoral Trusts Scheme


The Supreme Court has reserved its judgment on the challenge to the central government’s Electoral Bonds Scheme. This scheme, introduced in 2018, is under scrutiny, and the court is examining the issues raised in connection with electoral funding. Before the Electoral Bonds Scheme, the Electoral Trusts Scheme was introduced in 2013.


GS II: Government Policies and Interventions

Dimensions of the Article:

  1. Electoral Trusts Scheme (2013): An Overview
  2. What are Electoral Bonds?
  3. Distinguishing Electoral Trust Scheme (ETS) from Electoral Bonds Scheme (EBS)

Electoral Trusts Scheme (2013): An Overview

  • The Electoral Trusts Scheme was introduced in 2013 by the Central Board of Direct Taxes (CBDT).
  • Electoral Trusts are trusts established by companies with the primary purpose of distributing contributions received from other companies and individuals to political parties.
Eligibility and Renewal:
  • Only companies registered under Section 25 of the Companies Act, 1956, are eligible to apply for approval as Electoral Trusts.
  • Electoral Trusts must apply for renewal every three financial years.
Approval Process:
  • The scheme outlines the procedure for granting approval to electoral trusts to receive voluntary contributions and distribute them to political parties.
  • Provisions related to electoral trusts are governed by the Income-tax Act, 1961, and Income Tax Rules-1962.
Contributions to Electoral Trusts:
  • Electoral Trusts can receive contributions from Indian citizens, registered Indian companies, firms, Hindu undivided families, or resident associations.
  • They are prohibited from accepting contributions from non-Indian citizens, foreign entities, or other registered electoral trusts.
Distribution Mechanism:
  • For administrative expenses, electoral trusts can allocate a maximum of 5% of the total funds collected in a financial year.
  • The remaining 95% of the total income must be distributed to eligible political parties registered under the Representation of the People Act, 1951.
Bookkeeping Requirements:
  • Electoral trusts are mandated to maintain detailed books of accounts, including information on receipts, distribution, and a list of donors and receivers.
Audit Procedures:
  • Electoral trusts are required to undergo an audit of their accounts by a qualified accountant, with the audit report submitted to the Commissioner of Income-tax or the Director of Income-tax.

What are Electoral Bonds?

  • 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.
  • The citizen or corporate can then donate the same to any eligible political party of his/her choice.
  • The bonds are similar to bank notes that are payable to the bearer on demand and are free of interest.
  • An individual or party will be allowed to purchase these bonds digitally or through cheque.

Distinguishing Electoral Trust Scheme (ETS) from Electoral Bonds Scheme (EBS)

Transparency in Functioning:
  • ETS: ETS operates with transparency, disclosing both contributors and beneficiaries.
  • EBS: EBS lacks transparency due to donor anonymity, making it challenging to trace the origin of contributions.
Reporting Mechanism:
  • ETS: Adheres to a robust reporting system, submitting detailed annual contribution reports to the Election Commission of India (ECI).
  • EBS: Introduces a significant lack of transparency, given the anonymous nature of donors.
Financial Trends (2013-14 to 2021-22):
  • Political Funding through ETS: Totaling Rs 1,631 crore between 2013-14 and 2021-22.
  • Political Funding through EBS: Significantly higher at Rs 9,208 crore during the same period.
Association for Democratic Reforms (ADR) Report:
  • A single political party secured 72% of total donations facilitated by ETS in 2021-22.
  • The same party received 57% of funding through EBS from 2013-14 to 2021-22.
  • Over 55% of political party funding came through EBS according to the ADR report.

-Source: The Hindu

December 2023