The Hindu Business Line : CBDT rules to address anonymous donations to electoral trusts

New Delhi, July 18 The Centre plans to address the issue of taxation of anonymous donations to electoral trusts in the rules to be framed for such trusts by the Income-Tax Department.

Indications are that the rules will stipulate the disclosure of the names and other details of the donors and also the political parties to the tax authorities for availing themselves of the tax benefits. Non-compliance of the rule could lead to taxation of such donations at regular tax rates.

With the Finance Bill 2009 not explicitly addressing the issue of anonymous donations to electoral trusts, the Central Board of Direct Taxes (CBDT) is now getting a slew of representations on this issue.

Official sources said that the silence in the Finance Bill, 2009 on the issue of ‘anonymous donations’ to electoral trusts may not imply that such donations will get tax benefits. “This issue will be addressed at the stage of framing of rules,” a Finance Ministry official added.

Corporate donations

Budget 2009-10 provides that donations by corporates and other persons to ‘electoral trusts’ would be allowed as 100 per cent deduction in the computation of the income of the donor.

Donations to such electoral trusts would be treated as income of the trusts and be tax exempt only when at least 95 per cent of the voluntary contributions received by such trusts are distributed to political parties.

Meanwhile, the Institute of Chartered Accountants of India (ICAI) has suggested to the CBDT that anonymous donations to electoral trusts should be taxed. “We have represented to the CBDT Chairman that the issue of anonymous donations to electoral trusts should be addressed. Anonymous donations received by electoral trusts should be taxed and this is our suggestion,” Mr G. Ramaswamy, Member of ICAI’s direct tax committee told Business Line.

After the Finance Bill, 2009 is enacted into law, anonymous donations received by wholly religious institutions will remain exempt from tax. However, in the case of wholly charitable institutions, anonymous donations will be taxable to the extent such donations exceed 5 per cent of the total income of such trusts/institutions or Rs 1 lakh, whichever is more.

Currently, in the case of wholly charitable entities, all anonymous donations are taxed at the rate of 30 per cent.