New Delhi: Political parties could now receive more donations, with finance minister Pranab Mukherjee announcing a 100% tax deduction on companies and individuals contributing to electoral trusts.
Electoral trusts are created as pass-through vehicles for routing donations to political parties, and are approved by the Central Board of Direct Taxes. Currently, 100% deduction is allowed only if donations are made directly to political parties.
“Political parties may hope to get more donations by the move. This will also bring transparency in donations,” said Amitabh Singh, partner at audit and consulting firm Ernst and Young Pvt. Ltd.
In 2003, India enacted a new law that made private donations to political parties easier. This law allows contributions by private companies to political parties, with a maximum limit of 5% of their profits. It also makes it mandatory for contributions to be made by cheque, and requires that parties audit their annual accounts and maintain a list of donors who give in excess of Rs20,000 and submit this to the Election Commission.
So far, any indirect donation to political parties was taxable in the hands of the donor. “Currently, companies (donors) shy away from expressing affiliation to any particular political party by giving it direct donations,” said Singh.
For political parties, voluntary contributions are fully exempt from tax. While the Bharatiya Janata Party has welcomed the move, the Communist Party of India (Marxist) said it will increase corruption.
Santosh K. Joy contributed to this story.