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

Under the Income-tax Act, 2025, an electoral trust can keep its voluntary contributions out of total income only if it meets the conditions in Schedule VIII. Which of the following is one of those conditions?

An electoral trust must distribute 95% of its aggregate donations for the tax year, plus any surplus brought forward, to registered political parties and function as per Central Government rules. Only then are its voluntary contributions excluded from total income under Schedule VIII.

  1. AIt distributes at least 95% of the aggregate donations received in the tax year, together with any surplus brought forward, to registered political partiesCorrect
  2. BIt distributes 100% of donations received in the tax year to a single political party
  3. CIt retains at least 95% of donations as a corpus for future tax years
  4. DIt distributes 50% of donations to political parties and applies the rest to charitable purposes

Explanation

Schedule VIII (Sl. No. 2) requires the electoral trust to distribute 95% of the aggregate donations received during the tax year, along with any surplus brought forward from earlier years, to registered political parties. It must also function as per the rules made by the Central Government. Retaining 95% inverts the condition.

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