Exemption for Voluntary Contributions Received by Electoral Trusts [Section 13B] – Income Tax

Exemption for Voluntary Contributions Received by Electoral Trusts [Section 13B] :

(i) Any voluntary contribution received by an electoral trust (as may be approved by the CBDT in accordance with the scheme to be made by the Central Government) shall be treat as its income under section 2(24), but shall be exempt under section 13B, if the trust distributes to a registered political party during the year, 95% of the aggregate donations received by it during the year along with the surplus if any, brought forward from any earlier previous year.

(ii) Another condition for availing the benefit under this section is that the electoral trust should function in accordance with the rules made by the Central Government. Accordingly, the Central Government has notified Rule 17CA which provides that the following shall be the functions of an electoral trust referred to in section 13B –

(1) The electoral trust may receive voluntary contributions from

a) an individual who is a citizen of India;

b) a company which is registered in India; and

c) a firm or Hindu undivided family or an Association of persons or a body of individuals, resident in India.

(2) A receipt indicating the following shall be issued by the trust immediately on receipt of any contribution indicating the following:

a) name and address of the contributor;

b) Permanent account number of the contributor or passport number in the case of a citizen who is not a resident;

c) amount and mode of contribution including name and branch of the Bank and date of receipt of such contribution;

d) name of the electoral trust;

e) Permanent account number of the electoral trust;

f) date and number of approval by the prescribed authority; and

g) Name and designation of the person issuing the receipt.

(3) The electoral trust shall not accept contributions

a) from an individual who is not a citizen of India or from any foreign entity whether incorporated or not; and

b) from any other electoral trust which has been registered a company under section 25 of the Companies Act, 19564 and approved as an electoral trust under the Electoral Trusts Scheme, 2013.

(4) The electoral trust shall accept contributions only by way of an account payee cheque drawn on a bank or account payee bank draft or by electronic transfer to its bank account and shall not accept any contribution in cash.

(5) The electoral trust shall not accept any contribution without the PAN of the contributor, who is a resident and the passport number in the case of a citizen of India, who is not a resident.

(6) A political party registered under section 29A of the Representation of the People Act, 1951 shall be an eligible political party and an electoral trust shall distribute funds only to the eligible political parties.

(7) (i) The electoral trust may, for the purposes of managing its affairs, spend upto 5% of the total contributions received in a year subject to an aggregate limit of Rs.5 lakh in the first year of incorporation and Rs.3 lakh in subsequent years;

(ii) the total contributions received in any financial year alongwith the surplus from any earlier financial year, if any, as reduced by the amount spent on managing its affairs, shall be the distributable contributions for the financial year;

(iii) an electoral trust shall be required to distribute the distributable contributions received in a financial year, referred to in item (ii), to the eligible political parties
before the 31st March of the said financial year, subject to the condition that at least 95% of the total contributions received during the financial year along with the surplus brought forward from earlier financial year, if any, are distributed.

(8) The trust shall obtain a receipt from the eligible political party indicating the name of the political party, its permanent account number, registration number, amount of fund received from the trust, date of the receipt and name and designation of person signing such receipt.

(9) The electoral trust shall not utilize any contributions for the direct or indirect benefit of the members or contributors, or for any of the following persons, namely:

(a) the members (including members of its Executive Committee, Governing Committee or Board of Directors) of the electoral trust;

(b) any relative of such Members;

(d) any person who has made a contribution to the trust;

(e) any person referred in sub-section (3) of section 13; and

(f) any concern in which any of the persons referred to in clauses (a),(b),(c),(d) and (e) has a substantial interest.

(10) (i) An electoral trust shall keep and maintain such books of account and other documents in respect of its receipts, distributions and expenditure as may enable the computation of its total income in accordance with the provisions of the Act;

(ii) The electoral trust shall also maintain a list of persons from whom contributions have been received and to whom the same have been distributed, containing the
name, address and permanent account number (PAN) of each such person along with the details of the amount and mode of its payment including the name and branch of the bank.

(11) Every electoral trust shall get its accounts audited by an accountant as defined in the Explanation below section 288(2) and furnish the audit report in Form No.10BC along with particulars forming part of its Annexure, to the Commissioner of Income-tax or the Director of Income-tax, as the case may be, having jurisdiction over the electoral trust, on or before the due date specified for furnishing the return of income by a company under section 139.

(12) An electoral trust shall maintain a regular record of proceedings of all meetings and decisions taken therein.

(13) Every electoral trust shall furnish a certified copy of list of contributors and a list of political parties, to whom sums were distributed in the manner prescribed in sub rule (8), to the Commissioner of Income-tax or the Director of Income-tax, as the case may be, every year along with the audit report as stipulated under sub-rule (12);

(14) Any change in the shareholders, subsequent to the approval granted under the Electoral Trusts Scheme, 2013 shall be intimated to the Board within thirty days of such change.

Section 2(22AAA) defines ‘Electoral Trust‘ to mean a trust so approved by the CBDT, in accordance with the scheme made in this regard by the Central Government.

In exercise of the powers conferred by section 2(22AAA), the Central Government, has through Notification No.8/2013 dated 31.1.2013, notified the Electoral Trusts Scheme, 2013 to lay down the procedure for grant of approval to an electoral trust which will receive voluntary contributions and distribute the same to political parties.

Eligibility

A company registered for the purposes of section 25 of the Companies Act, 1956 satisfying all of the following conditions shall be eligible to make an application for approval as an electoral trust, namely –

(i) The company should be registered on or after 1.4.2012 for the purposes of section 25 of the Companies Act, 1956;

(ii) The name of the company registered for the purposes of section 25 of the Companies Act, 1956 has to include the phrase ―electoral trust‖;

(iii) The sole object of the electoral trust should be to distribute the contributions received by it to the political party, registered under section 29A of the Representation of the People Act, 1951;

(iv) The electoral trust should have a permanent account number.

Criteria for Approval

An electoral trust shall be considered for approval if it fulfills all of the following conditions, namely –

(i) The company registered for the purposes of section 25 of the Companies Act, 1956, which satisfies the above conditions;

(ii) The object of the electoral trust shall not be to earn any profit or pass any direct or indirect benefit to its members or contributors, or to any person referred to in section 13(3) or any person referred to in Rule 17CA of the Rules;

(iii) It has made adequate arrangement for recording the receipts from the contributors in accordance with Rule 17CA;

(iv) The stipulations contained in Rule 17A for functioning of the electoral trust are specifically included in the articles of association of the company registered for the purposes of section 25 of the Companies Act, 1956.

Renewal of approval

(i) The approval shall be valid for the assessment year relevant to the financial year in which such application has been made and for a further period, not exceeding three assessment years, as may be specified in the approval.

(ii) The electoral trust may apply for renewal of approval at any time during the financial year immediately preceding the last assessment year, for which the approval has been originally granted, and such renewal of approval may be granted after examining the application in the same manner as laid out for approval in this scheme.

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