India Inc forms companies to fund politics, tax free

Dec 17 2013, 09:37 IST
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SummaryVedanta, Mahindra put trust firms in place, others to follow.

Companies have already begun to work out their exposure to political parties in the 2014 general elections. Two corporate groups, Vedanta and Mahindra, have been first off the block to set up their electoral trust companies. The two entities Janhit Electoral Trust and Mahindra Electoral Trust Company were registered in August and December 2013, respectively, to make political donations, data bank of the ministry of corporate affairs shows.

While Janhit Electoral Trust was set up on August 8 in Tamil Nadu by the Vedanta Group, Mahindra Electoral Trust Company was set up as recent as December 9 in Maharshtra by Mahindra & Mahindra, as per the ministry.

Sources said that many big corporate houses, including the Tata Group, are in the fray to register as electoral trust company to avail of the tax benefits for political donations. The companies are disbanding their existing trusts to form these new companies.

These trusts will have to disclose the details of the amount contributed by them to any political party during the financial year.

However, the group companies setting up such Section 25 firms will not have to disclose the name of the parties and amount contributed to them. It has been decided by the ministry that original companys contribution would not reflect the name of political parties who are beneficiaries of donations made by them, a government official told The Indian Express.

The development comes along with the recent notification whereby the ministry has done away with the ceiling on political funding by firms.

This paves way for funding by companies, which have been in existence for less than three years, overruling an earlier pre-condition.

The ministry, too, has amended its name availability guidelines to allow companies to set up non-profit companies, calling them electoral trust, after the Central Board of Direct Taxes launched electoral trust scheme in January 2013 to usher in transparency in corporate funding to the political parties.

Under the scheme, those contributing to such trusts are entitled to 100 per cent tax deduction but only when the electoral trusts distribute 95 per cent of their annual contribution to eligible political parties.

In order to reform the system of funding of political parties, the UPA government had, in its 2009 Budget, extended tax breaks for electoral trusts.

Prior to 2009, corporates did not get any tax breaks on contributions made to electoral trusts.

These electoral trust companies would operate only for

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