Welcoming reports that the Government is "actively considering" the proposal of the ECI to debar electoral trusts from receiving foreign funding, the Association for Democratic Reforms (ADR) suggested to put this in the right perspective. It said it is also stated that electoral trusts under the present law can raise funds from foreign sources.
According to ADR, Section 4 of the Foreign Contributions (Regulation) Act (FCRA), 1976 and Section 3 of Foreign Contributions (Regulation) Act (FCRA), 2010 specify that political parties are NOT permitted to accept contributions from any foreign source or company. Electoral Trusts, whose sole purpose under Section 13B of the Income Tax Act, 1961 is to fund registered political parties in a transparent manner, are also governed underRule 17(CA) of the Income Tax Rules,1962
Specifically under Rule 17CA, sub-clause (2) and (4) of the Income tax Rules, 1962, the CBDT lists the sources from whom the Trusts are permitted and NOT permittedto accept donations. Rule 17(CA) was notified by the Central Bureau of Direct Taxes (CBDT), Dept. of Revenue in 2013 on 31st January, 2013, in the exercise of the powers conferred to it by clause (b) of Section 13(b) read with Section 295 of the Income Tax Act, 1961.
Hence, ADR said that i is quite clear that the electoral trusts CANNOT receive foreign funds as per existing Income Tax Rules, 1962. ADR recommends that all electoral trusts should adhere to Rule 17(CA) of the Income Tax Rules, 1962 which lists the functions of the electoral trusts and the Electoral Trusts Scheme, 2013 notified by the Central Government. The same rules which apply to those trusts formed after 31st January, 2013 should also apply to the electoral trust in existence prior to 31st January, 2013.