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Home / UPSC Editorials / Electoral Trusts

Electoral Trusts: Meaning, Advantages & Disadvantages - UPSC Editorials

Last Updated on Jan 22, 2025
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The recent Supreme Court decision to scrap the electoral bonds scheme has marked a paradigm shift in the context of political financing in India. One of the most striking developments is the increase in contributions through electoral trusts, as reports for the year 2023-24 indicate. At an unbelievable pace of hikes in donations, these trusts immediately filled the vacuum created by the now-scrapped electoral bond scheme as a test of emerging dynamics of corporate donations to the political parties. This paper analyzes the electoral trust, their purposes, and significant features against the legal backdrop in which it operates with comparative analysis of the erstwhile scheme of electoral bond.

Analysis based on 

Editorial published in Trust route booms after electoral bond ban: Corporate donors rush to donate via electoral trusts The Indian Express on January 20th, 2025

Topics for UPSC Prelims

Electoral Reforms in India, Electoral Bonds, Election Commission of India

Topics for UPSC Mains

Transparency and Accountability in Political Funding, Role of Corporate Entities in Electoral Donations

What are Electoral Trusts?

Electoral trusts are non-governmental organizations instituted for the collection of voluntary donations from individuals and corporate entities that would be forwarded to registered political parties. This concept was brought to ensure that Indian political donations are transparent and accountable. Therefore, the trusts act as conduits between the donors and political parties so that sources of funding do not get directly linked with the recipient parties. It is an attempt to weed out black funding and promote white funding of politics.

Objectives of Electoral Trusts

The main objectives of electoral trusts are as follows:

  • Promotion of Clean Funding: To eradicate the influence of black money in funding of politics, electoral trusts have been designed to foster legitimate and transparent financial contributions to political parties.
  • Ensure Transparency: These trusts make the process of political funding more transparent by demanding disclosure of donors and recipients, thereby allowing public scrutiny and reducing the scope for corruption.
  • Check Black Money: Contribution flow is formalized by electoral trusts, and therefore black money circulation in the political process is checked.
  • Regulate Corporate Contributions: They offer an organized framework whereby corporate houses can contribute to political parties legally and transparently.

Read the editorial on The Last 'One Nation, One Election' in 1967!

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Key Features of Electoral Trusts

Electoral trusts have many salient features that distinguish them from other modes of political funding.

  • Electoral trusts should not be aimed at earning profit. Contributions by any person and/or company to the trust must directly be channeled towards the political parties with no intention of profit-making.
  • Individuals and organizations give voluntarily to the trusts. The electoral trusts distribute the money to the political parties.
  • Electoral trusts of all the donations and distributions made by them must be audited periodically and brought before the public.
  • They are governed by particular regulations and guidelines which obligate adherence to the norms of transparency and accountability.

Read the article on the Laws Governing Elections in India!

Contribution to Electoral Trusts

Who can donate to electoral trusts for the integrity and transparency of political funding are clearly defined under regulations.

Who Can Contribute?

  • Voluntary Contribution: Any Indian citizen can donate to electoral trusts on a voluntary basis.
  • Corporate Bodies: Companies operating in India are eligible to donate to electoral trusts provided all the eligibility conditions are fulfilled under the specified legal provisions.

Who Cannot Contribute?

  • Foreign Bodies: Foreign companies and foreign nationals cannot donate to electoral trusts so that no foreign hand influences Indian political affairs.
  • Government Departments: Government departments and government-aided undertakings cannot donate.
  • Non-Citizens: Non-nationals living outside India cannot give donations to electoral trusts.

Read the article on the Supreme Court Rules on Conduct of Elections!

Laws Governing Electoral Trusts in India

Electoral trusts' legal framework in India is established for the reasons of transparency, accountability, and frequent auditing of the funds. Major legislation and directives are as follows:

  • Income Tax Act, 1961: Sections 13B and 80GGB of the Income Tax Act have made tax benefits for contributions offered to registered electoral trusts. Such an exemption can bring higher corporate donations.
  • Companies Act, 2013: This Act states that registered companies can donate a percentage of their net profits to political parties through electoral trusts.
  • Election Commission Guidelines: The Election Commission of India (ECI) requires electoral trusts to file details of donations and the way they are transferred to political parties, which is transparent and accessible to the public.
  • Companies (Acceptance of Deposits) Rules, 1975: These rules detail the procedure and compliance that ought to be followed while establishing and conducting electoral trusts.

Advantages and Disadvantages of Electoral Trusts

Electoral trusts have numerous advantages and disadvantages.

Advantages of Electoral Trusts

The electoral trusts serve the following advantages:

  • Increased Transparency: The required disclosures, along with periodical audits, ensure greater transparency in political funding through electoral trusts.
  • Legal Donations: The well-structured process motivates people and corporate houses to donate through legal means and decrease the participation of black money.
  • Public Accountability: Confinement as well as distribution report is presented before the public to make electoral trust visibly accountable.

Disadvantages of Electoral Trusts

The disadvantages of electoral trusts include the following:

  • Just a few Electoral Trusts: There are very few electoral trusts, and all parties don't get equal funding.
  • Biasing Potential: Companies may indulge in favoring certain political parties and thus provide an uneven amount of funds distribution, which in turn may lead to election consequences.
  • Overburdening of Regulation: Legal and procedural compliance may be highly burdensome to small companies so that they abstain from donation.

Read the article on the One Nation One Election!

Difference between Electoral Trusts and the Electoral Bond Scheme

The table below presents the differences between electoral trusts and electoral bonds:

Difference between Electoral Trusts and the Electoral Bond Scheme

Criteria

Electoral Trusts

Electoral Bond Scheme

Transparency

High degree of transparency because disclosures are mandated and auditing takes place.

Low degree of transparency as identities of donors cannot be traced.

Governing laws and ECI guidelines

Regulated by the Ministry of Finance with limited public oversight.

Governed by the Ministry of Finance and the Election Commission with limited public oversight.

Anonymity

No anonymity for donors or recipients.

Complete anonymity for donors.

Distribution Mechanism

Trusts distribute funds directly to political parties.

Bonds are bought and given directly to parties.

Hope all your questions about the topic have been answered by reading the editorial. Prepare well for UPSC IAS exams by downloading the Testbook App here!

UPSC Practice Question
  1. Discuss the significance of electoral trusts in ensuring transparency and accountability in political funding in India. How do they compare with the electoral bond scheme?
  2. Analyze the implications of the Supreme Court’s decision to abolish the electoral bond scheme on the political funding landscape in India.
  3. Evaluate the role of the Election Commission of India in regulating political donations and ensuring clean electoral processes.

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