Electoral trusts and political funding after bonds

Background of the shift in political funding

Electoral trusts and political funding after bonds: The Supreme Court of India struck down the Electoral Bonds Scheme in February 2024, declaring anonymous political donations unconstitutional. The judgment emphasised citizens’ right to information in electoral democracy.

After this ruling, corporate donors searched for a lawful and transparent alternative. This vacuum brought electoral trusts back into the centre of India’s political finance system.

Static GK fact: Political parties in India are regulated under the Representation of the People Act, 1951, which mandates disclosure norms for funding.

Electoral trusts regain relevance

Electoral trusts were originally introduced in January 2013 as a regulated channel for political donations. They predate electoral bonds by five years and were designed to ensure full disclosure of donors and recipients.

Data from disclosures to the Election Commission of India (ECI) shows a sharp revival. Donations rose from ₹1,218.36 crore in 2023–24 to ₹3,811 crore in 2024–25, reflecting a major shift in funding routes.

What are electoral trusts

Electoral trusts are non-profit entities created to receive voluntary contributions from eligible donors. They redistribute these funds to registered political parties only.

Unlike electoral bonds, electoral trusts must publicly disclose donor identities. Annual reports submitted to authorities contain complete contributor and beneficiary details.

Static GK Tip: Electoral trusts are regulated jointly by the Income Tax Department and the Election Commission, making them a dual-compliance mechanism.

Eligibility to form and donate

Any company registered under the Companies Act can establish an electoral trust. Donations are governed by Section 17CA of the Income Tax Act, 1961.

Eligible donors include Indian citizens, Indian companies, HUFs, firms, and associations of persons. Foreign contributions are strictly prohibited under Indian political funding laws.

Operational structure of electoral trusts

Electoral trusts operate under strict financial rules. They must renew registration every three financial years.

At least 95% of total annual receipts must be donated to political parties. Only 5% can be retained for administrative expenses. Donations are permitted only through banking channels, ensuring traceability.

Static GK fact: Mandatory disclosure of PAN details helps prevent the circulation of unaccounted money in political finance.

Concentration of donations in major trusts

Although several electoral trusts are registered, only a few remain active each year. In 2024–25, just nine trusts reported donations.

Nearly 98% of total contributions were routed through three trusts. Prudent Electoral Trust, Progressive Electoral Trust, and New Democratic Electoral Trust emerged as the dominant conduits. Prudent Electoral Trust alone handled over ₹2,600 crore, making it the largest channel of political donations.

Transparency advantages over electoral bonds

Electoral trusts are considered more transparent due to mandatory audits and public disclosures. They submit annual statements to the CBDT and the ECI.

These reports include donor names, donation amounts, and beneficiary political parties. This enables public scrutiny of both sides of political funding transactions.

Static GK Tip: Transparency in political funding is linked to free and fair elections, a basic feature of the Indian Constitution.

Implications for India’s democracy

The post-electoral bonds phase suggests that political donations have not reduced, but have been restructured. Electoral trusts now form the backbone of compliant political funding.

The challenge ahead lies in ensuring that rising corporate contributions do not undermine electoral fairness. Regulatory vigilance remains critical to preserve democratic accountability.

Static Usthadian Current Affairs Table

Electoral trusts and political funding after bonds: