CA Pratik Anand

Trusts and other charitable institutions generally receive money from Voluntary Contributions from members and from the general public, let us look at the taxation aspects of these voluntary contributions.

Whether voluntary contribution received can be treated as income?

As per section 2(24)(iia) of the Income Tax Act’1961 voluntary contributions received by a trust or institution existing for charitable purposes is the income of the trust or institution.

Institution means institutions existing for charitable purposes as per Section 2(15) of the Income Tax Act’1961. Example society running educational institutions like school will be covered in the definition of institution running for charitable purposes.

Whether voluntary contribution received will always be treated as income of the trusts or institution running for charitable purpose?

1) As per section 11(1)(d) of the Income Tax Act 1961 voluntary contributions received by the trust or charitable institutions with a specific direction that the contribution shall form part of the corpus of the trust or institution shall not be treated as income of the trusts or institution.

2) As per Section 12 of the Act, any voluntary contribution not with a specific direction that it will form part of the corpus will be treated as income of the trust or institution existing for charitable purposes.

3) As per section 12A of the Income Tax Act’ 1961, the benefit of Sections 11 & 12 will be available only if the trust or the institution is registered under the Income Tax Act as a trust or charitable institution u/s 12AA.

Therefore in light of the above tax treatment of voluntary contributions can be summarised as follows:

A) Voluntary contribution received with a specific direction that it forms part of the corpus of the trust is treated as follows:

1) If the trust or charitable institution is registered u/s 12AA of the Income Tax Act’1961:

♠ Then not taxable as per section 11(1)(d) of Income Tax Act’1961.

2) If the trust or institution is not registered U/s 12AA-

♠ Then voluntary contribution received is taxable as per Sec 2 (24) (iia) of the Income Tax Acyy’1961.

B) Voluntary contribution received (without direction that it forms part of corpus) is generally taxable under the head income from other sources.

Important Note:

As per section 115BBC of the Income Tax Act:

“Anonymous Donations” means any voluntary contribution where a person receiving such contribution does not maintain a record of the identity indicating the name and address of the person making such contribution and such other particulars as may be prescribed.

“Anonymous donations” are not taxable under section 115BBC if:

(i) Such donations are received by any trust/institution established wholly for religious purposes. Therefore in case of a trust owning a temple, the offerings/donations made by the devotees etc. shall not be taxable under this section even if the names/addresses of donors are not there. Such donations shall be subjected to provisions of section 11 & 12.

(ii) Such donations are received by any trust/institution established wholly for religious and charitable purposes. However such donations shall be taxable under section 115BBC if the anonymous donation is made with specific direction that such donation is for any university/school/educational institution/hospital/medical institution run by such trust i.e other than religious purposes.

Therefore keep record of persons when receiving voluntary contribution in trusts or other charitable institutions (other than religious institutions) such as name, address, PAN otherwise it can be taxed at Maximum marginal rate as anonymous donations as per Section 115BBC of the Income Tax Act’1961.

Hope you find the above information relevant and useful in your daily practice

(The author is a CA in practice at Delhi and can be contacted at: E-mail: capratikanand@gmail.com, Mobile: +91-9953199493)

Author Bio

Qualification: CA in Practice
Company: Pratik & Associates
Location: New Delhi, New Delhi, IN
Member Since: 10 Jun 2017 | Total Posts: 52
Pratik Anand is the founder of youronlinefilings.com, an online startup for business registrations, annual business compliance services, Tax filings, book keeping, legal consultancy etc. He is a Chartered accountant by profession and has special flair and expertise in the area of direct Taxation. H View Full Profile

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14 responses to “Taxation of voluntary Contributions received by Trusts/ Charitable Institutions”

  1. Sudhir luhadiya says:

    Sir
    Can donation or fund received from foreign institution & trust is taxable in the hand of trust or NGO registered in India

  2. Sudhir luhadiya says:

    can donation received from foreign institution or Trust
    is taxable in the hand of trust registered in India..?

  3. Satyanarayan Maniyar says:

    Rs 500 donations received in cash for building fund from various donors without identification of donors just like Rs 500 Tickets form ,what will be the position in Income Tax ,Generaly during admissions ,students collect funds for collage through Rs 500 for tickets for Building fund ,where donors identity is not known please advice I T provisions

  4. irfan shaikh says:

    i received money from general public for the construction of trust. should i consider it as a income or corpus fund.
    please help can i treat this donation as a corpus fund.

  5. christopher james says:

    Dear Pratik sir

    We have 3 Family based Charitable Trust. 2 of them are Church based Religious Trust and 1 trust is Non Religious.
    Sir , we have a Charitable Trust called as “Glades Auxiliary for Social Development” which is registered U/S 12A and also under U/S 80G. This is purely charitable trust.
    We now have a Religious Charitable Trust which is going to be registered under U/S 12A and this trust name is “GCCM TRUST” (Applied for 12A Registration)
    My First Query is Whether I can Transfer funds as corpus fund of Rs 10 lacs from ““Glades Auxiliary for Social Development” to the recently registered Religious Charitable Trust that is “GCCM TRUST” as donation ? Will there be any problems if I Transfer funds from Non Religious Trust to Religious Trust as corpus donation.
    In our 3rd Trust which was registered in 2005.The Name of that trust is “Glades Covenant Church Ministries” which is Church Religious Charitable Trust. This Trust is not registered under U/S 12A. We have a amount of 12 lacs rupees in its bank Account which was collected as Hundi/ Bag Collections in Church from last 6 years.
    My Second Query is Whether I can Transfer this fund of Rs 12 lacs from “Glades Covenant Church Ministries” to “GCCM Trust as a Corpus donation
    My Third Query is I wanted to invest this Corpus funds in Government Bonds and Mutual funds as per Section 11 (5) of the Income Tax Act. Kindly guide me on this issue. As per my knowledge Section 11 (5) of the Income Tax Act allows trusts to invest their unused funds in the Market.
    Kindly guide me on this above mentioned points & other implications attached to it.
    Regards….Christopher James
    09986139640
    Managing Trustee

  6. pratik says:

    if a trust gets voluntary contribution with specific direction in FY 13-14 but 12A is obtained in FY 14-15 though application was made in FY 13-14, whether VC received in FY 13-14 is taxable?

  7. jitendra patil says:

    very goods article of helping tax working.

  8. ananthavardhana says:

    sec 11)(1)(d) corpus fund. specific purpose includes scholarships, endowments, building fund, chariot fund etc. Corpus has not been defined anywhere. If that specific amount is utilised for for any other purpose, other than specified, nothing will happen. Any trust, first obtain sec 12A registration by applying in form 10A. Under s. 11 all expenses both revenue and capital can be claimed provided sec 12A registration is obtained. If no 12A only revenue expenses. Without 12A registration, all specific donations, building, endowment are taxable. Building construction expenses being capital in nature are also not deductible made out of this specific fund.All trust,associations to efile itr 7. follow the computation given therein. it is excellent.

  9. Anonymous says:

    Does a clause in Memorandum stating “maintaining dignity of religion” makes the institute eligible for deduction under Religious purpose exclusionary clause?

  10. Murali says:

    Very good article. Thank you Pratik

  11. Tapish Gupta says:

    my name is tapish gupta

  12. Shankeran says:

    Dear Mr. Pratik,

    A good summary of do and dont’s for trusts. Thanks
    CA Shankeran M V

  13. sudarshana says:

    Very good article particularly for the receipients. While many donors dont want to publicise their contributions for worthy things, there are a few who want ot divert unaccounted money for good cause. ‘Will not the ill-gotten wealth pollute the cause and shows its effect on the result?’. Point to ponder.

  14. Gopalakrishnan Nair says:

    Please let me know the impact of raising the EPF amount to Rs 16500/-as seen in news papers.Now Rs 25000/- salary but EPF calculated on Rs 6500/- only.

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