Electoral Trusts Surge Post Electoral Bond Ban: Transparency and Benefits
20-01-2025
05:53 AM

What’s in today’s article?
- Why in News?
- What are Electoral trusts?
- Benefits of Electoral Trusts Over Electoral Bonds
- Surge in Donations to Political Parties Through Electoral Trusts

Why in News?
As per the electoral trust contribution reports released by the Election Commission of India (ECI), donations to political parties saw a significant increase through electoral trusts after the Supreme Court’s decision to scrap electoral bonds in February 2024.
What are Electoral trusts?
- About
- Electoral trusts are non-profit organizations created to facilitate transparent political funding in India.
- They act as intermediaries, collecting voluntary contributions from individuals or companies and distributing them to registered political parties.
- Companies which can establish electoral trusts
- Any company registered under section 25 of the Companies Act, 1956, can seek approval to form an electoral trust.
- Creation
- The concept was introduced under the Income Tax Act, 1961, through Section 13B, which provides tax benefits to donors.
- The Election Commission of India (ECI) regulates electoral trusts, and their functioning is governed by the Electoral Trusts Scheme, 2013 introduced by the Ministry of Finance.
- Who Can Donate
- Indian citizens.
- Domestic companies registered under the Companies Act, 2013.
- Donors are required to disclose their identity and the amount contributed.
- Who Cannot Donate
- Foreign companies or individuals.
- Government companies.
- Entities prohibited under the Representation of the People Act, 1951, such as trusts that receive foreign funds.
- Issues
- Transparency Concerns: While trusts disclose the donors' names, the specific amounts donated to each political party are not publicly available.
- Corporate Influence: Large corporate donors dominate the trust system, raising concerns about undue political influence.
- Inequitable Distribution: A significant portion of the funds goes to ruling or major political parties, sidelining smaller ones.
- Lack of Donor Diversity: Contributions are primarily from a limited number of large corporations, leading to concentration of influence.
Benefits of Electoral Trusts Over Electoral Bonds
- Transparency in Donations
- Electoral trusts are legally required to disclose the names of donors and the amounts received to the ECI.
- Electoral bonds, on the other hand, allow anonymous donations, making it difficult to trace the source of funds.
- Accountability of Political Parties
- Electoral trusts mandate disclosure of the contributions disbursed to political parties. This ensures that the public knows which party received how much funding.
- Electoral bonds do not require such disclosures, limiting accountability.
- Regulatory Oversight
- Electoral trusts are governed by the Electoral Trusts Scheme, 2013, and their operations are closely monitored by the ECI, ensuring adherence to legal guidelines.
- Electoral bonds are managed by banks, with little transparency about regulatory scrutiny.
- Prevention of Foreign Influence
- Electoral trusts prohibit foreign donations, reducing the risk of foreign interference in Indian politics.
- Electoral bonds do not explicitly restrict foreign-controlled entities registered in India from purchasing bonds, raising concerns about foreign influence.
Surge in Donations to Political Parties Through Electoral Trusts
- About the news
- The Supreme Court's February 15, 2024, ruling to scrap the electoral bonds scheme led to a significant shift in corporate political donations, redirecting them to the electoral trust route.
- Electoral Trust, the largest contributor, witnessed a sharp surge in donations during the subsequent months, highlighting a diversion of funds from bonds to trusts.
- Transparency in Electoral Trusts vs Electoral Bonds
- Unlike the anonymity of electoral bonds, trusts are required to disclose donor names and amounts distributed to political parties.
- However, the exact allocation of individual corporate contributions to specific parties is not revealed.
Q.1. What is Electoral Trust in Income Tax?
Electoral trusts are non-profit organizations under the Income Tax Act that facilitate transparent political funding by collecting donations and distributing them to political parties.
Q.2. What are the examples of Electoral Trust?
Examples include the Bharatiya Electoral Trust and the Association for Democratic Reforms, which channel donations to political parties transparently.
Q3. What is Electoral Trust Scheme?
Introduced in 2013, the Electoral Trust Scheme governs the creation and operation of electoral trusts, ensuring transparency in political donations through regulation by the Election Commission of India.
Q4. Why Electoral Bond Was Declared Unconstitutional?
The Supreme Court declared electoral bonds unconstitutional in February 2024 due to concerns over anonymity, lack of transparency, and the potential for corporate influence on political parties.
Q5. What are Electoral Bonds in India?
Electoral bonds are financial instruments introduced in 2018 for anonymous donations to political parties. While legal, they lack transparency, leading to concerns about unaccounted funding.