Govt paves way for setting up 'electoral trust' companies

MCA has amended its 'Name Availability Guidelines' for companies to enable registration of such entities

To bring in greater transparency in corporate funding of political parties' poll expenses, the government has paved way for setting up of 'Electoral Trust' companies that would get tax benefits for funds given to various political outfits.

The latest move would allow the 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 amended its 'Name Availability Guidelines' for the companies to enable registration of such entities.

"Name including phrase 'Electoral Trust' may be allowed for registration of companies to be formed under Section 25 of the Companies Act, 1956 under the Electoral Trusts Scheme, 2013, as notified by the Central Board of Direct Taxes (CBDT)," the ministry said in a new circular.

However, such a company would have to be a new entity and the name application would need to be accompanied with an affidavit to effect that the name to be obtained shall be only for the purpose of registration of companies under Electoral Trust Scheme of CBDT, the ministry added.

The government notified this Electoral Trusts Scheme earlier tis year to streamline the process and bring in more transparency in the funds provided by corporate entities to the political parties for their election-related expenses.

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

Besides, they can not 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 disclosed having made contributions to different political parties through their trusts.

However, there have been concerns that a lack of transparency in such funding procedures, prompting the government to come out with a clear set of regulations in this regard.