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CA Final · Direct Tax Laws & International Taxation · Assessment of Trusts and Institutions, Political Parties and Other Special Entities

Sampark Electoral Trust received voluntary contributions of ₹10,00,000 in the tax year, with a surplus of ₹2,00,000 brought forward from an earlier tax year. It functions as per the rules made by the Central Government. It distributed ₹11,00,000 during the year to a political party registered under section 29A of the Representation of the People Act, 1951. What is the position for exclusion of contributions under the Income-tax Act, 2025?

The contributions are not excluded. The required distribution is 95% of donations plus brought-forward surplus, which is 95% of ₹12,00,000, or ₹11,40,000. Only ₹11,00,000 was distributed, so the Schedule VIII condition is unmet and the income is charged to tax.

  1. AExcluded, since distribution of ₹11,00,000 exceeds 95% of the ₹10,00,000 received this year
  2. BExcluded only to the extent of ₹9,50,000
  3. CNot excluded, since the trust distributed less than 95% of ₹12,00,000, i.e. ₹11,40,000Correct
  4. DNot excluded, because an electoral trust can never claim exclusion of voluntary contributions

Explanation

Condition (a) requires distribution of 95% of aggregate donations received during the year along with surplus brought forward. The base is ₹10,00,000 + ₹2,00,000 = ₹12,00,000; 95% is ₹11,40,000. The trust distributed only ₹11,00,000, so the condition fails and section 12(2) charges the income. Using 95% of ₹10,00,000 ignores the brought-forward surplus.

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