TAX ON CHARITABLE DONATIONS
- Voluntary donations earned from Trusts / Charitable Organisations
- Trusts and other charitable institutions typically collect funds from donors and from the general population, let 's look at the tax implications of such voluntary donations.
- Whether voluntary contributions can be treated as income?
- Under section 2(24)(iia) of the Income Tax Act,1961, voluntary contributions received by a trust or institution for charitable purposes are the trust or institution's income.
- Institution means institutions that exist for charitable purposes under Section 2(15) of the Income Tax Act,1961. Example society running educational institutions like school will be covered in the definition of charitable institution.
- Whether voluntary contributions received will always be treated as trust income or as charitable institution?
- 1) According to section 11(1)(d) of the Income Tax Act 1961, voluntary contributions received by trust or charitable institutions with a specific direction are not to be treated as income of trusts or institutions.
- 2) Under Section 12 of the Act, any monetary donation that does not constitute part of the corpus would be considered as profits of a trust or entity that functions for charitable purposes.
- 3) Under section 12A of the Income Tax Act 1961, the benefits of sections 11 and 12 shall only be available if the trust or institution is registered under the Income Tax Act as a trust or charitable institution u / s 12AA.
- Therefore, the tax status of charitable donations can be defined as follows:
- Taxation on charitable donations
- A) The voluntary contribution received as part of the trust's corpus is treated as follows:
- 1) If the trust or charity is registered under the Income Tax Act of 1961:
- * Non-taxable under section 11(1)(d) of the Income Tax Act'1961.
- 2) Unless the trust or institution is registered 12AA-
- Then voluntary contribution received is taxable pursuant to Section 2(24)(iia) of Income Tax Acyy'1961.
- B) Voluntary contributions received (without forming part of the corpus) are generally taxable under head income from other sources.
- Note important:
- Section 115BBC of Income Tax Act:
- "Anonymous gifts" includes all charitable contributions where a individual collecting these contributions may not keep an identification record showing the name and address of the person giving these contributions and such information that may be required.
- "Anonymous donations" shall not be taxable if:
- I any trust / institution wholly established for religious purposes receives such donations. Therefore, in the case of a temple-owned trust, offerings / donations made by devotees etc. are not taxable under this section even if donor names / addresses are not there. Such donations are subject to Sections 11 & 12.
- (ii) any trust / institution wholly for religious and charitable purposes shall receive such donations. However, such donations are taxable under section 115BBC if the anonymous donation is made for any university / school / educational / hospital / medical institution run by such trust other than religious purposes.
- Keep records of persons receiving voluntary contributions in trusts or other charitable institutions (other than religious institutions) such as name , address, PAN otherwise as anonymous donations may be taxed at a maximum marginal rate if the aggregate of anonymous donations received exceeds the following:
- (A) five percent of the assessee 's overall donations;
- (B) one lakh-rupee
- Section 115BBC of the Income Tax Act , 1961.
