ELECTORAL TRUSTS

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Context

• The BJP received Rs 351.50 crore, which is nineteen times more donations than the Congress in 2021-22 from electoral trusts, according to ADR data.
• On the contrary, Congress’s donation is less than that received by the TRS, Samajwadi Party, AAP and YSR Congress.

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 Companies Act, 1956 are only eligible to make an application for approval as an electoral trust.

The names of electoral trusts, currently, do not indicate the name of the company/group of companies which set up the trusts.

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 electoral trusts (approved under the Electoral Trusts Scheme)
• Contributors without PAN
• NRIs without a passport number

Procedure while collecting money from contributors

The electoral trusts are required to issue a receipt to the contributor. Along with this, Trusts record the following information?

1. Name and address of the contributor.
2. PAN of donor/ passport number in case of NRI.
3. Amount and mode of contributions (with name and branch of Bank, date of receipt of donation).
4. Name of electoral trust.
5. PAN of electoral trust.
6. Date and number of approval by CBDT. (vii) Name and designation of the person issuing the receipt.

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.

Recent Issue:

• The ongoing scrutiny of corporate contributions to political parties reveals a complex landscape involving both electoral bonds and electoral trusts.
• While electoral bonds have gained attention due to their anonymity, electoral trusts also play a significant role in channeling corporate donations.

Trends in Electoral Trust Contributions

Data Analysis:

• Electoral trusts emerged as substantial contributors, with five trusts collectively donating ₹366 crore to political parties during the fiscal year 2022-23.
• Notably, the ruling BJP received a significant portion of these funds, amounting to ₹259.08 crore.

Major Contributors and Recipients

Key Players:

• Megha Engineering and Infrastructure emerged as one of the significant contributors to electoral bonds.
• Their substantial donation of Rs 87 crore to Prudent Electoral Trust, which heavily favors the BJP, underscores their influence.
• Other notable contributors such as Serum Institute of India and Greenko Energy participate in both electoral bonds and electoral trusts, indicating a diversified approach to political contributions.

Historical Perspectives

Evolution of Corporate Funding:

• Over time, electoral trusts have garnered donations from a range of corporations, including Arcelor Mittal, Essel Mining, Vedanta, and Airtel Bharti, among others.
• The trend of corporate funding shifting towards the BJP in recent years reflects broader changes in political dynamics and corporate strategies.

Financial Disparity and Political Impact

Congress-BJP Disparity:

• The financial gap between the Congress and the BJP, which had narrowed before the 2014 election, has since widened.
• Notably, the Prudent Electoral Trust demonstrates a significant bias towards the BJP in its corporate donations, indicating a potential impact on political outcomes.

Corporate Involvement and Trust Affiliations

Corporate Engagement:

• The involvement of corporations such as Bharti Airtel, DLF, and others in funding electoral trusts underscores the diverse corporate interests at play.
• Various electoral trusts, each associated with different corporate groups, further highlight the breadth of corporate involvement in political financing.

Diversity of Electoral Trusts

Trust Affiliations:

• Electoral trusts affiliated with different corporate groups, such as the Bajaj Electoral Trust, Janhit Trust, and Samaj Electoral Trust, demonstrate the diversity of approaches to political contributions among corporations.
• Transparency and Mechanisms

Electoral Trust Mechanism:

• Unlike electoral bonds, which offer anonymity to donors, electoral trusts ensure transparency by revealing corporate contributors through contribution reports submitted to the poll panel and the public.
• This transparency is crucial for maintaining accountability and public trust in the political financing system.

Conclusion

• The examination of corporate contributions to political parties reveals a nuanced landscape shaped by electoral bonds and electoral trusts.
• Understanding the trends involved is essential for comprehensively addressing the complexities of corporate influence on political financing and ensuring transparency and accountability in the electoral process.

PRELIMS QUESTION Q. Which of the following statements regarding electoral trusts is/are correct? Electoral trusts are established by companies to distribute contributions received from other companies and individuals to political parties. Only companies registered under section 25 of the Companies Act, 1956 are eligible to apply for approval as electoral trusts. The names of electoral trusts indicate the names of the companies or groups of companies that set them up. Individuals who are citizens of India, companies registered in India, and associations of persons (Indian residents) are eligible contributors to electoral trusts. Select the correct answer using the codes given below: a) 1 and 2 only b) 1, 2, and 4 only c) 2 and 3 only d) 1, 3, and 4 only Answer: b) 1, 2, and 4 only Electoral trusts are entities established by companies to manage and distribute contributions to political parties. Only companies registered under section 25 of the Companies Act, 1956 are eligible to apply for approval as electoral trusts. The names of electoral trusts do not necessarily indicate the names of the companies or groups of companies that set them up. Individuals who are citizens of India, companies registered in India, and associations of persons (Indian residents) are eligible contributors to electoral trusts. Therefore, the correct answer is option b) 1, 2, and 4 only.