What are Electoral Trusts?

Why in news:
Following the Supreme Court’s February 2024 judgment scrapping the Electoral Bonds Scheme, companies have increasingly shifted back to electoral trusts as a preferred and lawful channel for political donations in FY 2024–25.

Key Trends

• FY 2023–24:
  • Only 5 electoral trusts reported contributions
  • Total donations: ₹1,218.36 crore
• FY 2024–25:
  • 9 electoral trusts reported contributions
  • Total donations surged to ₹3,811 crore
• The sharp rise reflects the vacuum created after the abolition of anonymous electoral bonds.

What are Electoral Trusts?

• Introduced: 2013 (before Electoral Bonds in 2018)
• Purpose: Facilitate transparent political donations by individuals and corporations
• Legal Basis:
  • Electoral Trust Scheme, 2013 (notified on 31 January 2013)
  • Section 17CA, Income Tax Act, 1961

Who Can Donate?

Under Section 17CA of the Income Tax Act:

• Indian citizens
• Companies registered in India
• Firms, Hindu Undivided Families (HUFs)
• Associations of persons residing in India

Key Features of Electoral Trusts

• Any company registered under the Companies Act can form an electoral trust
• Mandatory transparency:
  • Trusts must report:
    • Names of donors
    • Amount contributed
    • Political parties receiving funds
  • Reports are submitted annually to the Election Commission of India
• Donation rule:
  • At least 95% of contributions received in a financial year must be donated to political parties registered under the Representation of the People Act, 1951
• Renewal:
  • Trusts must apply for renewal every three financial years
• Identity disclosure:
  • PAN required for resident donors
  • Passport number required for NRIs

Electoral Trusts vs Electoral Bonds

Aspect	Electoral Trusts	Electoral Bonds (Scrapped)
Donor anonymity	❌ Not allowed	✅ Allowed
Disclosure to ECI	Mandatory	Not required
Transparency	High	Low
Introduced	2013	2018
Current status	Active	Declared unconstitutional (2024)

Source: IE