Rule 289: How an electoral trust must function
Rule 289 lays down how an electoral trust under Schedule VIII [Table: Sl. No. 2] must function. It controls who may contribute, how contributions are received, receipts, distribution of at least 95% to registered political parties within the tax year, an administrative expense cap, books and lists, audit in Form No. 181 and intimation of changes in shareholders.
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Rule 289 - Rules for functioning of an electoral trust
(1) An electoral trust referred to in Schedule VIII [Table: Sl. No. 2] to the Act shall function in accordance with the provisions of this rule.
(2) The electoral trust may receive voluntary contributions from—
(a) an individual who is a citizen of India; or
(b) a company which is registered in India; or
(c) a firm or Hindu undivided family or an association of persons or a body of individuals, resident in India.
(3) The electoral trust shall accept contributions only by way of an account payee cheque drawn on a bank or account payee bank draft or by electronic transfer to its bank account and shall not accept any contribution in cash.
(4) The electoral trust shall not accept any contribution without the Permanent Account Number of the contributor, who is a resident and the passport number in the case of a citizen of India, who is not a resident.
(5) A receipt indicating the following shall be issued by the trust immediately on receipt of any contribution: —
(a) name and address of the contributor;
(b) Permanent Account Number of the contributor or passport number in the case of a citizen who is not a resident;
(c) amount and mode of contribution including name and branch of the Bank and date of receipt of such contribution;
(d) name of the electoral trust;
(e) Permanent Account Number of the electoral trust;
(f) date and number of approval by the prescribed authority; and
(g) name and designation of the person issuing the receipt.
(6) The electoral trust shall not accept contributions—
(a) from an individual, who is not a citizen of India, or from any foreign entity whether incorporated or not; or
(b) from any other electoral trust which has been registered as a company under section 8 of the Companies Act, 2013 (18 of 2023) and approved as an electoral trust under the Electoral Trusts Scheme, 2013; or
(c) from a Government Company as defined in section 2(45) of the Companies Act, 2013(18 of 2013); or
(d) from a foreign source as defined in section 2(j) of the Foreign Contribution (Regulation) Act, 2010 (42 of 2010).
(7) A political party registered under section 29A of the Representation of the People Act, 1951 (43 of 1951) shall be an eligible political party and an electoral trust shall distribute funds only to the eligible political parties.
(8) (a) The electoral trust may, for the purposes of managing its affairs, spend up to 5% of the total contributions received in a year subject to an aggregate limit of ₹ 500000 in the first year of incorporation and ₹ 300000 in subsequent years;
(b) the total contributions received in any tax year along with the surplus from any earlier tax year, if any, as reduced by the amount spent on managing its affairs, shall be the distributable contributions for the tax year; and
(c) an electoral trust shall be required to distribute the distributable contributions for a tax year, referred to in clause (b), to the eligible political parties before the 31st March of the said tax year, subject to the condition that at least 95% of the total contributions received during the tax year along with the surplus brought forward from earlier tax year, if any, are distributed.
(9) The trust shall obtain a receipt from the eligible political party indicating the name of the political party, its Permanent Account Number, registration number, amount of fund received from the trust, date of the receipt and name and designation of person signing such receipt.
(10) The electoral trust shall not utilise any contributions for the direct or indirect benefit of the members or contributors, or for any of the following persons: —
(a) the members (including members of its Executive Committee, Governing Committee or Board of Directors) of the electoral trust; or
(b) any relative of such Members; or
(c) where such member or contributor is a Hindu undivided family, a member of that Hindu undivided family; or
(d) any person who has made a contribution to the trust; or
(e) any person referred to in section 355(h); or
(f) any concern in which any of the persons referred to in clauses (a), (b), (c), (d) and (e) has a substantial interest.
(11) (a) An electoral trust shall keep and maintain such books of account and other documents in respect of its receipts, distributions and expenditure as may enable the computation of its total income in accordance with the provisions of the Act;
(b) The electoral trust shall also maintain a list of persons from whom contributions have been received and to whom the same have been distributed, containing the name, address and Permanent Account Number of each such person along with the details of the amount and mode of its payment including the name and branch of the bank.
(12) Every electoral trust shall get its accounts audited by an accountant, as defined in section 515(3)(b), and furnish the audit report in Form No. 181 along with particulars forming part of its Annexure, to the Director General of Income Tax (Systems) on or before the due date specified for furnishing the return of income under section 263(1)(c).
(13) The Form No. 181 referred to in sub-rule (12), shall be furnished electronically, —
(a) under digital signature, if the return of income is required to be furnished under digital signature; or
(b) through electronic verification code, in a case not covered under clause (a).
(15) An electoral trust shall maintain a regular record of proceedings of all meetings and decisions taken therein.
(16) Every electoral trust shall furnish a certified copy of list of contributors and a list of political parties, to whom sums were distributed in the manner specified in sub-rule (8), to the Director General of Income Tax (Systems), every tax year along with the audit report as stipulated under sub-rule (12).
(17) Any change in the shareholders, subsequent to the approval granted under the Electoral Trusts Scheme, 2013 shall be intimated to the Board within thirty days of such change.
Rule breakdown
Contributions: Rule 289(2) to (6)
From Indian citizens, companies registered in India, and resident firms, HUFs, AOPs or BOIs.
Only by account payee cheque, account payee bank draft or electronic transfer; no cash.
PAN of a resident contributor, or passport number of a non-resident Indian citizen, is required.
A receipt with prescribed details is issued immediately.
Not from non-citizens or foreign entities, other electoral trusts registered under section 8 and approved under the Electoral Trusts Scheme, 2013, Government companies, or foreign sources under the FCRA, 2010.
Distribution: Rule 289(7) to (9)
Only to political parties registered under section 29A of the Representation of the People Act, 1951.
Administrative spend: up to 5% of contributions in a year, capped at Rs 5,00,000 in the first year and Rs 3,00,000 later.
Distribute the distributable contributions before 31 March of the tax year, with at least 95% of contributions plus brought-forward surplus distributed.
Obtain a receipt from each party with the prescribed details.
Restrictions and records: Rule 289(10) to (17)
No benefit to members, their relatives, HUF members, contributors, persons in section 355(h), or concerns in which they have substantial interest.
Books of account and a list of contributors and recipients with name, address, PAN and payment details.
Audit by an accountant as defined in section 515(3)(b); report in Form No. 181 to DGIT (Systems) by the return due date under section 263(1)(c), with digital signature or EVC as applicable.
Record of proceedings of meetings, certified lists of contributors and parties each year, and intimation to the Board of shareholder changes within thirty days.
The notified English text moves from sub-rule (13) to sub-rule (15); there is no sub-rule (14) in it.
Key takeaways
No cash
Contributions only by banking channels.
95% rule
At least 95% distributed to registered parties within the tax year.
Audit
Form No. 181 by the return due date.
Practical checklist
- Collect PAN or passport number before accepting a contribution.
- Distribute before 31 March each tax year.
- Intimate shareholder changes to the Board within thirty days.
Avoid
- Do not accept contributions from foreign sources, Government companies or other electoral trusts.
FAQs
Can an electoral trust accept cash?
No (Rule 289(3)).
How much must be distributed?
At least 95% of contributions received in the tax year plus surplus brought forward, before 31 March of the tax year (Rule 289(8)(c)).
What can it spend on administration?
Up to 5% of contributions, capped at Rs 5,00,000 in the first year of incorporation and Rs 3,00,000 in later years (Rule 289(8)(a)).
Which form is the audit report?
Form No. 181, filed with DGIT (Systems) by the return due date (Rule 289(12)).
Glossary
- Eligible political party
- A party registered under section 29A of the Representation of the People Act, 1951 (Rule 289(7)).
- Distributable contributions
- Contributions plus surplus, less administrative spend (Rule 289(8)(b)).