The Central Board of Direct Taxes (CBDT) has come out with an ‘Electoral Trust Scheme’, which lays down the procedure for grant of approval to an electoral trust. With this move, such trusts are set to get more popular with corporate India. The taxman’s approval is important for electoral trusts to avail themselves of tax exemption on voluntary contributions received by them. Once this is done, donors to such trusts will get 100 per cent tax deduction for their contributions. However, these tax breaks will be available only when the electoral trusts distribute 95 per cent of their annual contribution to eligible political parties. To reform the system of funding of political parties, the UPA Government had, in its 2009 Budget, extended
tax breaks for ‘electoral trusts’. It was seen as a win-win arrangement as it would encourage creation of such trusts and help corporates avoid getting into an embarrassing situation of supporting only certain political parties. Prior to the 2009 move, corporates did not get any tax breaks on contributions made to electoral
trusts.
