Governance
Electoral Trusts Scheme, 2013
- 11 Nov 2023
- 6 min read
For Prelims: Electoral Trusts Scheme, Electoral Bonds, Political Parties, Representation of the People Act 1951
For Mains: Effects of Electoral Bonds on the election process, Issues Arising Out of Design & Implementation of Policies
Why in News?
Recently, Supreme Court has reserved its judgment on the challenge to the central government’s Electoral Bonds Scheme.
- Before the introduction of the Electoral Bonds (EB) Scheme in 2018, another scheme for Electoral funding called Electoral Trusts (ET) Scheme, was introduced in 2013.
What is Electoral Trusts Scheme?
- About:
- Electoral Trusts Scheme, 2013 was notified by the Central Board of Direct Taxes (CBDT).
- An Electoral Trust is a Trust set up by companies with the sole objective to distribute the contributions received by it from other Companies and individuals to the political parties.
- Only the companies registered under Section 25 of the Companies Act, 1956 are eligible to make an application for approval as an Electoral Trust. The electoral trusts have to apply for renewal every three financial years.
- The scheme lays down a procedure for grant of approval to an electoral trust which will receive voluntary contributions and distribute the same to the political parties.
- The provisions related to the electoral trust are under Income-tax Act, 1961 and Income tax rules-1962.
- Contributions to Electoral Trusts:
- They may receive contributions from:
- An individual who is a citizen of India
- A company registered in India
- A firm or Hindu undivided family or an Association of persons or a body of individuals, resident in India.
- They shall not accept contributions from:
- An individual who is not a citizen of India or from any foreign entity whether incorporated or not;
- Any other electoral trust registered under the scheme.
- They may receive contributions from:
- Mechanism for Distribution of Funds:
- For administrative expenses, the Electoral Trusts are permitted to set aside a maximum of 5% of the total funds collected during a financial year.
- The remaining 95% of total income of the Trusts is required to be distributed to eligible political parties.
- Parties registered under the Representation of the People Act, 1951 are eligible to receive the contributions.
- The remaining 95% of total income of the Trusts is required to be distributed to eligible political parties.
- Electoral trust are required to keep and maintain books of account including details of receipts, distribution and list of donors and receivers.
- For administrative expenses, the Electoral Trusts are permitted to set aside a maximum of 5% of the total funds collected during a financial year.
- Audit of Accounts of Electoral Trusts:
- Every electoral trust is required to get its accounts audited by an accountant and furnish the audit report to the Commissioner of Income-tax or the Director of Income-tax.
What are Electoral Bonds?
- Electoral Bond is a financial instrument for making donations to political parties.
- The bonds are issued in multiples of Rs. 1,000, Rs. 10,000, Rs. 1 lakh, Rs. 10 lakh and Rs. 1 crore without any maximum limit.
- State Bank of India is authorised to issue and encash these bonds, which are valid for fifteen days from the date of issuance.
- These bonds are redeemable in the designated account of a registered political party.
- The bonds are available for purchase by any person (who is a citizen of India or incorporated or established in India) for a period of ten days each in the months of January, April, July and October as may be specified by the Central Government.
- A person being an individual can buy bonds, either singly or jointly with other individuals.
- Donor’s name is not mentioned on the bond.
How is Electoral Trust Scheme different from Electoral Bonds Scheme?
- Transparency and Accountability:
- The functioning of ETs is marked by transparency. Contributors and beneficiaries are disclosed.
- Electoral Trusts adhere to a robust reporting system, submitting detailed annual contribution reports to the Election Commission of India (ECI). This ensures a comprehensive record of donations and their allocation.
- On the other hand, the EB Scheme introduces a significant lack of transparency.
- The anonymity of donors creates an opaque environment in the funding process, making it challenging to trace the origins of contributions.
- The functioning of ETs is marked by transparency. Contributors and beneficiaries are disclosed.
- Funding Trends (2013-14 to 2021-22):
- 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 EB scheme.
- 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.
- 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 EB scheme.
- Political Party Receipts:
- As per a report by the Association for Democratic Reforms (ADR), a single political party has secured 72% of the total donations facilitated by ETs in the year 2021-22 and 57% of the funding through EBs from 2013-14 to 2021-22.
- The report also found that more than 55% of the funding for political parties came through EBs.
Legal Insights: Electoral Bonds Case
