Donations to electoral trusts of recognised political parties will be allowed 100 per cent deduction in the taxable income of the donor, finance minister Pranab Mukherjee announced in Budget 2009-10.

"With a view to reforming the system of funding of political parties, I propose to provide that donations to electoral trusts shall be allowed as a 100 per cent deduction in the computation of the income of the donor," he said while announcing the budget proposals.

"The house will agree that it is desirable to bring about transparency in the funding of political parties in the country," he added.

"For this purpose, electoral trusts will be such trusts as are set up as pass-through vehicles for routing the donations to political parties and are approved by the Central Board of Direct Taxes (CBDT)," the finance minister said.