Trusts: Donations & Exemptions

Anonymous Donations:

Provisions Relating to Anonymous Donations[ Sec. 115BBC ]

A new section 115BBC has been inserted in the Income-tax Act, 1961 by the Finance Act, 2006 so as to provide that any income by way of anonymous donations received by a trust, fund, institution, etc. referred to in that section shall be included in the total income of the assessee, being the person in receipt of such income on behalf of the trust, fund, institution, etc. and shall be chargeable to tax at maximum marginal rate.

For the purposes of this section, ‘anonymous donation’ means any voluntary contribution referred to in section 2(24)(iia), 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. [Section 11 5BBC(3)]

Corpus Donation – Not an Income

The question of Exemption arises when there is an Income. There are certain donations which are not the Income. Such as if Trust receives the Corpus donation then it is not treated as the Income and thus criteria of 85% don’t apply to the Corpus receipt.

What Constitutes a Corpus Donation?

There is no such definition of Corpus Donation in Income Tax Act neither in any governing laws of trusts. In this situation of ambiguity there have been number of litigations involving corpus donation pending. However in general parlance, any donation to be called as corpus shall be donated by the specific instruction of donor specifying the modes and ways of its utilization and shall specifically be instructed to be the part of corpus.

If any donation is given for the construction of fund and with the clear direction that only interest of the fund shall be used then it is the Corpus donation.

However there must be clear and circumstantial evidences to support any donation as corpus donation.

Corpus donation is not routed through Income & Expenditure account, it is generally credited to the respective fund account.

Revenue Donation:

The voluntary contribution referred to in section 2(24)(iia) other than corpus donations are revenue donations for the trust and they will be treated as the income of the trust for the relevant financial year.

The income of the ‘Public Charitable or Religious Trust’ gets exempted from the Income tax subject to following conditions mentioned u/s 11&12:

i. The trust shall expend 85% of the total donation received by it during the year in a year in which it has been received. If the 85% of the total receipts is spent for its purpose then rest of the 15% will not be treated as Income and thus it will be Exempt from the Tax.

ii. Trust can claim exemption even when it has not spent 85% of its income. If it sets apart the residual amount for the specific objects of the trust and passes a resolution to spend it in next 5 years. However the Copy of the resolution along with form No.10 shall be sent to the Assessing Officer before time specified u/s 139(1).

To claim the deduction of set apart amount the set apart amount shall be invested only in the securities Specified u/s 11(5) of the Act and within the prescribed time limit and in prescribed manner.

Section 80G of the I-T Act

Section 80G of the I-T Act allows donations made to specified relief funds and charitable institutions as a deduction from gross total income.

Who can avail the benefit:

This deduction is available for the donors.

Deduction under this section is not restricted to any specific category of persons/ assessees.

This deduction can be availed by any assessee who makes a donation to the notified institutions and the relief funds set up by the government.

However, one must remember that any donation made to foreign trusts and political parties do not qualify for deduction under this section.

Any donation to political parties made by an Individual can be claimed as a deduction under the section 80GGC of the I-T Act.

Mode of Payment:

A deduction can be claimed under section 80G only when the contribution is made to specified funds and institutions either via cheque or cash.

Effective from the assessment year 2018-19, a person can avail a maximum deduction of Rs 2,000 if the donation is made in cash.

However, there is no maximum limit on the deduction amount if the payment is made via cheque or digital payment methods.

Any donation made in kind such as in the form of clothes, food rations etc. cannot be claimed as deductions under this section.

Amount of donation that can be claimed as deduction from income

The amount of donation which can be claimed as a deduction under section 80G is determined as per certain rules.

You can claim either 100% or 50% of the amount donated as a deduction subject to ‘With’ or ‘Without’ the upper limit.

How much of the amount donated can be claimed as deduction and whether with or without upper limit depends on the entity to which you are donating.

The income tax department has notified (and periodically updates) a list of institutions/entities specifying the limit on the deduction that can be claimed on donations made to each entity.

Deduction on donation without upper limit: When the ‘without upper limit’ clause is applicable on the donation made to an entity, then the donor can claim either 50% or 100% of the donation amount without any other limitation.

The Prime Minister’s National Relief Fund and the National Defence Fund are some examples of funds set up by the central government on which ‘without upper limit’ and 100% deduction clauses are applicable. An Individual can claim deduction on 100% of the amount donated.

Trust funds like Jawahar Lal Nehru Memorial Fund and Prime Minister’s Drought Fund allow the donor to claim only 50% of the amount donated- as deduction.

Deduction on donations ‘With upper limit’: On the institutions where the ‘With upper limit’ clause is applicable then deduction can be claimed as either 100% or 50% (whichever is permitted for that specific entity) of 10% of the Gross adjusted income of the individual.

Gross Adjusted income for this purpose is calculated as Gross Total Income minus (i) all exempted incomes, (ii) long-term capital gains and, (iii) all deductions under section 80C to 80U except for 80G.

Donations made to the Government or any local authority for the promotion of family planning qualify for claiming deduction of 100% of the 10% of the Gross adjusted income.

Donation made for any purpose other than the promotion of family planning, to the Government or any local authority, or for repairs or renovation of any notified temple, mosque, gurudwara, church or another religious place qualify for claiming deduction of 50% of the 10% of the Gross adjusted income.

Documents Required

To avail, the deduction one must provide the standard receipt issued by the trust/donee entity as proof of the donation made.

While taking the receipt, one must make sure that the receipt contains the name, address, Pan Number of the trust, the registration number of the trust, name of the donor and amount donated, written in words and figures.

These details will be required at the time of filing ITR to claim deduction.

Exempted categories of gift:

The Taxation Laws (Amendment) Act, 2006 amended provisions of section 56 where gifts above specified limits received from specified persons are exempted. Further provision have been inserted to enlarge the scope of exemption.

The exempted categories of gifts will include gifts from a local authority as defined in the Explanation to clause (20) of section 10; a fund or foundation or university or other educational institution or hospital or other medical institution or any trust or institution referred to in clause (23 C) of section 10; or from a trust or institution registered under section 1 2AA.

The amount of exempted gift was increased from Rs. 25000 to Rs. 50000 with effect from the 1st day of April, 2006.

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