Indian income-tax law | Electoral trusts | Updated October 2026

Section 13B of the Income-tax Act, 1961: Electoral Trust Donations and Tax Exemption

Section 13B provided an exemption for voluntary contributions received by an electoral trust, subject to distribution of at least 95% of donations and brought-forward surplus to eligible registered political parties and compliance with prescribed rules. From 1 April 2026, the corresponding provisions are found in section 12 and Schedule VIII of the Income-tax Act, 2025.

1. Meaning of an electoral trust and Section 13B

An electoral trust is an entity approved under the prescribed electoral trust framework for collecting voluntary contributions and distributing them to eligible political parties. It is not the same as a political party: the trust receives and passes on funds, while the recipient party must be registered under section 29A of the Representation of the People Act, 1951.

Section 13B, introduced with effect from 1 April 2010, excluded qualifying voluntary contributions from the trust's total income only when the statutory distribution and rule-compliance conditions were met. This is a conditional exclusion, not a blanket exemption for all receipts or activities.

2. Conditions for exemption under Section 13B

Section 13B(a): The 95% distribution condition

The electoral trust must distribute to political parties registered under section 29A, during the relevant previous year, at least 95% of the aggregate donations received in that year together with any surplus carried forward from earlier years. A distribution to an unregistered group does not meet this requirement.

Section 13B(b): Compliance with Central Government rules

The electoral trust must operate according to the rules prescribed by the Central Government. Under the earlier framework these included Rule 17CA of the Income-tax Rules, 1962 and the Electoral Trusts Scheme, 2013. The conditions address permitted contributors, banking channels, eligible recipients, accounts, and reporting.

3. How an electoral trust must operate

The Ministry of Finance's official explanation of the Electoral Trusts Scheme, 2013 describes the trust's purpose and the obligation to distribute at least 95% within the financial year. The operational rules are more detailed than the short text of section 13B.

• Permitted contributions: verify that the contributor is an eligible person under the applicable rules and record identifying particulars.
• No cash contributions: use permitted traceable banking channels, such as account-payee instruments or electronic transfers.
• Eligible political parties: distribute only to parties registered under section 29A of the Representation of the People Act, 1951.
• Accounts and audit: maintain contribution, expenditure and distribution records and comply with prescribed audit and reporting requirements.
• No private benefit: funds must not be diverted for the personal benefit of trustees, contributors or connected persons contrary to the rules.

4. What changed from 1 April 2026?

The Income-tax Act, 2025 applies to tax years commencing on or after 1 April 2026. Its section 12 read with Schedule VIII, Table item 2 carries forward the exemption for voluntary contributions received by electoral trusts, subject to the same central conditions: distribution of 95% of current-year donations plus brought-forward surplus and compliance with Central Government rules.

The detailed operating requirements are now contained in Rule 289 of the Income-tax Rules, 2026. The official 2026 rules specify non-cash receipts, eligible contributors and recipients, permitted administration expenditure, recordkeeping, and the distribution deadline. Rule 289(8) also sets a limit for administrative expenditure: up to 5% of current-year contributions, subject to an aggregate ceiling of Rs. 5,00,000 in the first year of incorporation and Rs. 3,00,000 in subsequent years. These expense limits do not displace the minimum 95% distribution requirement.

For an authoritative reading, consult the Income-tax Act, 2025 as amended and the official notification containing the Income-tax Rules, 2026.

5. Example: Applying the 95% test

This is a simplified numerical example of the statutory 95% threshold. Actual compliance also requires satisfying the rules governing administration expenses, distribution deadlines, eligible political parties and records.

6. Electoral trust compliance checklist

1. Confirm approval or recognition under the relevant electoral trust scheme.
2. Accept contributions only from permitted contributors through allowed non-cash channels.
3. Maintain the contributor's identity, amount, payment mode and other required records.
4. Verify that every recipient political party is registered under section 29A.
5. Calculate the 95% distribution threshold including any surplus carried forward.
6. Distribute the required amount within the relevant tax year and obtain recipient acknowledgements.
7. Maintain books of account, complete the prescribed audit and reporting, and file applicable returns on time.

7. Frequently asked questions

Is every contribution received by an electoral trust tax-free?

No. The exemption is conditional upon meeting the 95% distribution requirement and the applicable operating rules.

Can an electoral trust distribute funds to any organisation?

No. For the statutory exemption, distributions must be to political parties registered under section 29A of the Representation of the People Act, 1951.

Is Section 13B the applicable reference for tax year 2026-27?

For tax years beginning from 1 April 2026, use section 12 read with Schedule VIII of the Income-tax Act, 2025, together with Rule 289 of the Income-tax Rules, 2026. Section 13B remains relevant when examining earlier tax years.

8. Official legal references

• Income Tax Department: Section 13B of the Income-tax Act, 1961
• Income Tax Department: Income-tax Act, 2025, section 12 and Schedule VIII
• Income Tax Department: Income-tax Rules, 2026 (Rule 289)
• Ministry of Finance: Electoral Trusts Scheme, 2013
• Election Commission of India

This article is a general guide to the statutory framework. Check the applicable tax year, notifications, forms and amendments before acting on a specific case.