CMA Final · Direct Tax Laws and International Taxation · Assessment of Trusts
Under Schedule VIII read with section 12 of the Income-tax Act, 2025, what is the condition regarding distribution that an electoral trust must satisfy for its voluntary contributions to be left out of its total income?
An electoral trust must distribute 95% of the aggregate donations received in the tax year, together with any surplus brought forward from earlier years, to registered political parties. It must also function as per the Central Government's rules. Only then are its voluntary contributions excluded from total income.
- AIt must distribute 95% of aggregate donations received in the tax year, along with any surplus brought forward, to registered political partiesCorrect
- BIt must distribute 85% of the donations received in the tax year to registered political parties
- CIt must distribute 100% of the donations received in the tax year, excluding any brought-forward surplus
- DIt must distribute 95% of donations received only to political parties that have won seats in the Lok Sabha
Explanation
Schedule VIII, item 2, requires the electoral trust to distribute to registered political parties 95% of the aggregate donations received during the tax year along with the surplus, if any, brought forward from earlier tax years. The 85% and 100% figures do not appear in the Schedule. The Schedule also refers to parties registered under the Representation of the People Act, not to parties that have won seats.
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