Corporate houses line up 'Electoral Trusts' to fund polls

Dec 17 2013, 20:23 IST
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Most of these trusts have been named in such a manner that they do not give any reference to the associated business groups (Reuters) Most of these trusts have been named in such a manner that they do not give any reference to the associated business groups (Reuters)
SummaryThese trusts have been incorporated as non-profit companies under Section 8 of the new Companies Act

process and bring in more transparency in the funds provided by corporate entities to the political parties for their election-related expenses.

The new scheme allows corporate and other entities to register non-profit companies having 'Electoral Trust' as part of their names, thus differentiating them from the companies having other business interests.

The Corporate Affairs Ministry has also amended its 'Name Availability Guidelines' for the companies to enable registration of such entities.

Earlier such companies could be formed under Section 25 of the Companies Act, 1956 under the tax department's Electoral Trusts Scheme, 2013, while such registrations are now being governed under Section 8 of the new Companies Act, 2013.

Under this scheme, such companies can get tax benefits only if they distribute 95 per cent of total contributions received by them in any financial year to the registered political parties within that year itself.

Besides, they cannot receive any contribution in cash and they are required to take the Permanent Account Number of all contributors who are resident Indians, and passport number of non-resident Indian citizens at the time of receiving the contribution.

These Electoral Trust companies are not allowed to accept contributions from foreign citizens or companies.

Many business conglomerates, including Tatas, Aditya Birla group and Bharti Groups, have in the past also disclosed having made contributions to different political parties through their trusts.

The companies can donate funds to political parties directly without setting up 'Electoral Trusts' also, but that requires greater disclosure with regard to entities getting the funds.

Under the Companies Act, 2013, corporates are required to disclose in their profit and loss account contributions made to political parties. They also have to furnish particulars of the total amount contributed as well as name of the party to which it is given.

However, corporates have expressed divergent views on the proposed provisions under the new companies law.

Under the Companies Act, corporates that violate the provisions related to providing funds for political parties could face strict punishments including penalties.

In a written reply to the Rajya Sabha, Corporate Affairs Minister Sachin Pilot today said that 'Electoral Trusts Companies' are required to indicate the amounts passed on by them to a political party in the prescribed manner.

Section 182 of the Companies Act allows companies to contribute amounts, directly, or indirectly to a political party subject to limitation and disclosures laid down therein.

It has been recently clarified that companies making contributions to a political party through 'Electoral

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