Tightening funding norms, the income tax department has barred state-owned companies and foreign sources such as trusts and foundations from contributing money to electoral trusts that are formed to fund political parties.
Amending the Rule 17CA of I-T Act, CBDT said an electoral trust will not be allowed to accept contributions from “a government company” as well as “a foreign source” as defined under the Foreign Contribution (Regulation) Act, 2010.
The definition of foreign source is wide and includes foreign government, trust or a foundation, society, club or other associations registered overseas. It also includes foreign and Indian companies in which over 50 per cent of shares is held by foreigners, trade unions and trusts, societies or associations of individuals registered abroad.
Earlier, electoral trusts were not allowed to accept funding from an individual who is not a citizen of India or from any foreign entity. Also, they were barred from getting contributions from other electoral trust set up under the Electoral Trusts Scheme, 2013.
Electoral trusts are not-for-profit companies and distribute contribution received from various sources to the political parties.
As per Rule 17CA of Income-Tax Rules, 1962, the electoral trusts can receive voluntary contribution from any company or individual for funding of political parties.
These trusts are approved by the Central Board of Direct Taxes (CBDT) in accordance with the Electoral Trust Scheme of 2013.
The I-T Act provides for 100 per cent deduction for the contributions made to a political party.