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CMA Final · Direct Tax Laws and International Taxation · Assessment of Trusts

Electoral trust Lokmat Electoral Trust received voluntary contributions of ₹ 8,00,000 in a tax year and had no surplus brought forward. It distributed ₹ 7,20,000 to registered political parties in that year and otherwise functions as per the Central Government's rules. What is the position under Schedule VIII of the Income-tax Act, 2025?

The condition fails. The trust needed to distribute 95% of ₹ 8,00,000, which is ₹ 7,60,000, but gave only ₹ 7,20,000. Since the Schedule VIII condition is unmet, section 12(2) makes the contributions chargeable to tax for that tax year, with no proportionate exemption.

  1. AExemption is available because 90% has been distributed
  2. BCondition fails, because 95% of ₹ 8,00,000 is ₹ 7,60,000, so the contributions are charged to tax under section 12(2)Correct
  3. CExemption is available on ₹ 7,20,000 only, with the balance ₹ 80,000 taxed
  4. DExemption is available because the trust has no surplus brought forward

Explanation

Required distribution is 95% x 8,00,000 = ₹ 7,60,000. Actual is ₹ 7,20,000 (90%), so condition (a) is not met. Under section 12(2), income for which the conditions fail is charged to tax. The Schedule gives no proportionate relief, so the part-exemption option is wrong.

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