how to setup electoral trust
The concept of establishing an electoral trust in India is a legal process of various stages that can be described as follows. Electoral trusts are institutions formed for the purpose of collecting money from different sources and disbursing the same to political parties which are legally recognized. Below is a step-by-step guide on how to set up an electoral trust in India:
√Understand the Legal Framework
- Electoral Trust Scheme, 2013: This scheme has been notified by the CBDT that contains the provisions for formation and functioning of the electoral trusts in India.
- Income Tax Act, 1961: Sub-sections contained in Section 13B of the Income Tax Act are meant for the tax treatment of electoral trusts.
- Electoral Finance Act 2000: It makes provision for electoral trusts as separate legal entities that can receive financial contributions and donations from any source including from companies on CSR initiatives or on voluntary basis. The post Companies Act, 2013: Companies Act, 2013: Companies can contribute to electoral trusts as part of their corporate social responsibility (CSR) or as voluntary donations appeared first on Write Den.
- Foreign Contribution (Regulation) Act (FCRA): So, it is to be noted that electoral trusts cannot accept any amount from foreign sources.
√Formation of the Electoral Trust
The Electoral Trust was formed as a response to specific political and social conditions and the mission of the Trust is inspired by the tradition of the rest of the world regarding promotion of electoral democracies in the world.
- Electoral trusts can only be formed under section 8 of the Companies Act, 2013 which was formerly section 25 of the Companies Act, 1956. These are the companies that are formed for the intention of carrying out charitable activities and which does not distribute their profits among the members.
>Key Characteristics of Section 8 Companies:
√No member can share any profits from the business.
√Proposed objectives need to be non-profit or be intended for the promotion of commerce arts, scientific research and development, sports and education, and political enlightenment.
√Has to be registered with the Registrar of Companies in order to be run.
√Prepared a skeletal note for the drafting of memorandum of Association (MOA) and Articles of Association (AOA).
- Memorandum of Association (MOA): Explains the mission, vision, and goals of the electoral trust. It should clearly state that the trust is formed for the purpose of accepting donations form the public and especially from the business people and other individuals and then passing the same to the accredited political parties.
- Articles of Association (AOA): Contains information of how the trust works and how it is governed, the manner in which trustees are appointed, ways in which meetings should be conducted and the manner in which issues should be decided on.
√apply For Name Approval
- Section 4 of the Companies Act, 2013 mandates every electoral trust to have a name which is distinct and does not violate any provisions of the Companies Act or the rules made there under: recommendations:-select the name of the electoral trust,-apply for approval of the name under section 155 of the Companies Act, 2013 in the electronic form to the Ministry of Corporate Affairs (MCA). It has to encompass the rationale of the electoral trust and should be in line with the name approval requirements of the Companies Act.
√Companies Register or the Registrar of Companies (ROC)
- Application Form: Yes it is compulsory to file Form INC-1 for name approval and form INC-12 with license under Section 8 on the same and documents.
- Documents Required:
√Markets reach and Area of coverage by the company.
√A declaration to the effect therein by a professional namely Chartered Accountant, Company Secretary or Advocate in Form INC-14.
√Statement in Form INC-15 regarding some matters by each of the subscriber to the MOA.
√Half yearly balance sheet for the next three years allowing for calculated estimated incomes and expenditures.
√Organizational structure Promoters and directors of the organizations.
- Registration Fee: Make the payment of the prescribed registration fee to the ROC.
√Acquire License under Section 8
- Following the name approval one is required to apply for a license under section 8 of Companies Act. After the verification and once satisfied the Registrar of the Companies grants permission to carry out the business under Section 8 of the Companies Act.
√Applying for the Permanent Account Number ( PAN) and the Tax deduction and Collection Account Number ( TAN)
- PAN: Applying for a PAN card and save the same in the name of the electoral trust. PAN is required in filings of tax returns and to open a bank account among other uses.
- TAN: File for a TAN to be able to deduct tax at source on amount paid by the trust.
√Open a Bank Account
- Open a separate account for the electoral trust so that all fund related activities are not mixed with any other account. The donations received as well as the payments made to the trust should be done through this account to make them open to tracking.
√Now Chartered Accountant Firm or any other Professional Firm engaged in providing services of CA or Taxation firm required to register with the Central Board of Direct Taxes (CBDT).
- In order to be accorded tax exemptions under Section 13B of the Income Tax Act, electoral trusts has to be Registered with the CBDT.
- Application for Approval: The applicant has to apply to CBDT with the registration certificate, trust deed and such other documents as may be required.
- Approval: The CBDT will scrutinise the application and after satisfying the specified conditions allow the trust to function under Electoral Trust Scheme 2013.
√Is Disclosure and Reporting Requirements sustainably managed?
- Disclosure of Donations: Any electoral trust has to make the details of contribution that has been received and distributed in the annual report. Donations received amount, which crossed ₹20,000 limit should be disclosed.
- Submission to Election Commission of India (ECI): Electoral trusts have to file an annual affidavit with the ECI about amounts received and the amount that have been distributed to political parties. Such an approach contributes to accountability and assists in tracing political funding.
- Audit: The electoral trust is required to have records and the record should be audited at least once in a year by a Chartered Accountant. The audit report has to be submitted to the CBDT and ECI.
√Adhere to Contribution Rules
- It is relevant to remember that electoral trusts can only accept donations from individuals, companies or even any other source located in India.
- Any donation from any foreigner or any organization in foreign country is not allowed.
- Ideally the trust should disburse funds to the registered political parties in the same fiscal year to enable compliance.
√Proper Documentations and record keeping should also be maintained
- Contribution Receipts: To save receipts, acknowledge every contribution that you receive with an issue receipt. He/She should keep files that captures the following details of the contributors their names, their residential address and how much they contributed.
- Distribution Records: They should maintain records of fund expenditure particularly on political parties and it should indicate the name of the political party which has benefitted and the amount disbursed.
- Meeting Minutes: Keep records of all the meetings of the trustees particularly on the meetings that involves disbursement of funds.
√Regular Compliance Checks
- Electoral trusts should independently and often assess their compliance with the rules specified under the Electoral Trust Scheme, the Income Tax Act, and the Companies Act.
- Employ own lawyers and accountants to make sure that all existing laws and regulations are followed and to properly deal with audits, filings, and reports.
Summary
To establish an electoral trust in India, certain guidelines as provided under the electronics trust scheme 2013 must be followed besides other laws such as the income tax act and companies act. By so doing, you are able to set up a transparent & legally sound electoral trust, which promotes political funding in a manner that increases its accountability.
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