Electoral Trusts

Electoral Trusts

Subject :Polity

Section: Election

Context: Recent SC hearing on Electoral bonds

Electoral Trusts:

Background:

Before the controversial Electoral Bonds (EB) Scheme was introduced in 2018, there was something called an Electoral Trusts (ET) Scheme, which was introduced by the UPA government in 2013.

What are electoral trusts?

These are trusts set up by companies with the objective to distribute the contributions received from other companies and individuals to the political parties. The companies which are registered under section 25 of the of the Companies Act, 1956 are only eligible to make an application for approval as an electoral trust

Who can and who cannot contribute to electoral trusts?

Who can:

An individual who is a citizen of India A company registered in India an association of persons (Indian residents)

Who cannot:

An individual who is not a citizen of India Other electrotrusts (approved under the Electoral Trusts Scheme) Contributors without PAN NRIs without a passport number

How are funds distributed by electoral trusts?

For administrative expenses, the electoral trusts are permitted to set aside a maximum of 5 per cent of the total funds collected during a financial year. The remaining 95 per cent of total income of the trusts including any surplus from the previous financial year is required to be distributed to eligible political parties.

What Laws/Rules govern the creation and functioning of electoral trusts?

• The Central Government amended the Income Tax Rules, 1962 on January 31, 2013, to insert Rule 17CA which lists the functions of electoral trusts approved by the Central Bureau of Direct Taxes (CBDT).
  The Central Government, also launched ‘The Electoral Trusts Scheme, 2013 which specified the eligibility and procedure for registration as an electoral trust apart from laying down the format for their registration.

And how does the working of this scheme differ from that of the EB Scheme?

• The electoral trusts route is transparent on contributors and beneficiaries. Where there is only one contributor and one beneficiary of a particular trust, the public can know for sure who is funding whom.
• However, if there are multiple contributors and recipients of donations, it cannot be specified which company is funding which party. But it is difficult to pinpoint which donor gave to which party.
• Electoral bonds, on the other hand, are exempt from disclosure requirements. Parties inform the ECI of the aggregate donations received through EBs, but give no details of the donors, which they are required to do in case of donations in cash or by cheque or bank transactions over Rs.20,000 each.
• The government argues that this lack of transparency in donations through EBs is to maintain the privacy of donors.

How do donations through electoral trusts stack up against donations made through EBs?

• Data from nine financial years (2013-14 to 2021-22) show that political funding through the two government schemes shot up after the introduction of EBs, with the bulk of donations coming through the newer scheme.
• Over this entire nine-year period, a total Rs 2,269 crore was routed to parties though the ETs, from Rs 85.37 crore in 2013-14 to Rs 464.81 crore in 2021-22.
• During the period 2017-18 — the financial year in which EBs were first made available — to 2021-22, however, the money donated through EBs was more than five times the amount that came through the Electoral Trusts. Thus, between 2017-18 and 2021-22, political parties got a total Rs 1,631 crore through ETs, while Rs 9,208 crore was donated through EBs.