Electoral trusts

Also called: Electoral Trusts Scheme 2013 · Topic: Electoral Reforms: Money, Criminalisation and Simultaneous Elections · NCERT: Beyond NCERT

Meaning

An electoral trust is a non-profit company set up only to collect donations and pass them on to political parties registered under s.29A of the Representation of the People Act (RPA) 1951. Under the Electoral Trusts Scheme of 31 January 2013, it must give away at least 95% of what it receives each year. Since electoral bonds were struck down in 2024, these trusts are the main legal way for large company donations to reach parties. That makes them central to the debate on clean party funding.

Explanation

What an electoral trust is

• A middleman for party funding. Donors give money to the trust. The trust then passes it on to political parties.
• It is a company, not a trust deed. The name says "trust", but the legal form is a not-for-profit company.
• It was first set up under s.25 of the Companies Act 1956 [1].

• Today it is registered under s.8 of the Companies Act 2013 [3].

• It exists for one purpose only. It collects donations and passes them to registered parties. It does not run a business or contest elections.

• Who made the scheme: the CBDT (Central Board of Direct Taxes, the body that runs income tax) notified the Electoral Trusts Scheme on 31 January 2013.

Its duties in each tax year (in order)

1. Collect donations from contributors during the tax year.
2. Pass on at least 95% of the donations received, plus any surplus left from earlier years, to parties registered under s.29A RPA [2].
3. Finish the payouts before 31 March of that tax year [1].
4. Report to the tax department. Send a certified list of contributors and a list of parties that received money, along with the audit report (accounts checked by a chartered accountant) [1].
5. Get the tax benefit. If all these rules are followed, the donations the trust receives are tax-free [2].

Under the new tax law

• The Income-tax Act 2025 came into force on 1 April 2026.
• Income listed in Schedule VIII of that Act is not counted in the total income of a political party or an electoral trust, as long as the Schedule's conditions are met [2].
• Electoral trusts are covered by Schedule VIII (Table, Sl. No. 2). They must follow Rule 289 of the new Income-tax Rules [3].

Limits and weak points

• It is a pass-through, not a place to keep money. At most 5% can stay with the trust.
• Only registered parties can receive money. A party must be registered under s.29A RPA.
• The money trail breaks. The trust names its donors and lists the parties it paid. But when many donors give to one trust, and that trust pays several parties, voters cannot easily tell which donor funded which party.

In the Constitution and practice

• Legal base: the trusts come from statute and executive schemes, not from the Constitution.
• The CBDT Electoral Trusts Scheme, 31 January 2013.
• s.25 Companies Act 1956, now s.8 Companies Act 2013 [3].
• s.29A RPA 1951, which decides which parties can receive money.

• Schedule VIII of the Income-tax Act 2025 and Rule 289 [3].

• Who acts on them:

• The CBDT approves trusts and keeps the list of approved trusts.

• The Election Commission of India (ECI) publishes each trust's annual contribution report online, along with the CBDT's list of electoral trusts [1].

• Where they fit in the wider funding rules:

• s.29B RPA: a party may take money from any person or company, except a government company or a foreign source.
• s.29C RPA: a party must report each donation of more than ₹20,000 in Form 24A.

• s.182 Companies Act 2013: a company giving to a party must be at least 3 years old. It can give up to 7.5% of its average net profit of the last 3 years, and it must disclose the gift.

• After the 2024 judgment:

• In Association for Democratic Reforms v. Union of India (15 February 2024), the Supreme Court struck down the electoral bond scheme. It also struck down the 2017 changes that had removed the 7.5% cap and the duty to name the party.
• Since then, electoral trusts have been the main lawful route for large company donations. Check the latest contribution reports for current trends.

Don't confuse with

• Electoral bonds (2018–2024): bonds kept the donor anonymous (unnamed) to the public, and the Supreme Court struck them down in 2024. Electoral trusts disclose their donors and are still lawful.
• Direct corporate donation (s.182 Companies Act 2013): here the company gives straight to a party and names that party in its profit and loss account. With a trust, the money goes through a middleman, so the donor–party link is harder to see.
• Political party (s.29A RPA): a party contests elections and receives money. An electoral trust cannot contest elections. It only passes money on to registered parties.
• A charitable trust under a trust deed: despite its name, an electoral trust is a company (s.8 Companies Act 2013, earlier s.25 Companies Act 1956).

Prelims Hooks

• The Electoral Trusts Scheme was notified by the CBDT on 31 January 2013. Trap: it was not notified by the ECI or the Ministry of Law.
• A trust must pass on at least 95% of its yearly donations, plus surplus from earlier years, before 31 March [2][1].
• Legal form: a not-for-profit company under s.8 Companies Act 2013, earlier s.25 Companies Act 1956 [3][1].
• Recipients must be parties registered under s.29A RPA. A party that is not registered cannot receive money.
• Income-tax Act 2025 → electoral trusts are in Schedule VIII (Table, Sl. No. 2) and work under Rule 289 [3].
• The ECI publishes each trust's annual contribution report and the CBDT's list of trusts [1]. Trap: the trust reports donors to the tax department, and the ECI puts the reports out for the public.

Mains Points

• Disclosure without traceability (the ability to follow the money from start to end):
• Trusts name their donors and the parties they pay, which is better than anonymous electoral bonds.
• But because the trust stands in the middle, voters cannot easily match a donor to a party.

• This weakens the voter's right to information under Article 19(1)(a), which the Supreme Court upheld in 2024.

• Main route after 2024, under limited oversight:

• Large company money now flows mostly through trusts.
• However, the ECI has no power to audit parties. It also cannot deregister parties for financial wrongdoing.

• Suggested fixes: require each trust to report which donor's money went to which party; make parties file audited accounts with the ECI; bring parties under the RTI Act (the CIC said so in 2013, but parties did not comply).

• Wider funding reform:

• Trusts deal only with who gives money. They do nothing about unlimited party spending or the large share of party income from "unknown sources".
• Ideas such as state funding of elections (Goswami Committee, 1990; Indrajit Gupta Committee, 1998) need to go along with trust rules if money power is to be reduced.

Related concepts

• Money power in elections
• Election expenditure limits
• Star campaigner
• Section 29C of the RPA 1951
• Section 13A of the Income Tax Act 1961
• Cash donation limit
• Corporate donations to political parties
• Foreign funding of political parties

Read more

• Money power I: expenditure limits and party finance