Income Tax exemption if corpus donation by exempt entities to other exempt entities.

By | February 20, 2018
(Last Updated On: February 20, 2018)

CIRCULAR No. 2/2018 Dated 15.02.2018

14. Restriction on exemption in case of corpus donation by exempt entities to other exempt entities.

14.1 Donations made by a trust to any other trust or institution registered under section 12AA or to any fund or institution or trust or any university or other educational institution or any hospital or other medical institution referred to in sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 of the Income-tax Act, except those made out of accumulated income, is considered as application of income for the purposes of its objects.

14.2 Similarly, donations made by entities exempted under sub-clause (iv) or sub-clause (v) or sub-clause (vi) or sub-clause (via) of clause (23C) of section 10 to any trust or institution registered under section 12AA, except those made out of accumulated income, is also considered as application of income for the purposes of its objects.

14.3 However, donation given by these exempt entities to another exempt entity, with specific direction that it shall form part of corpus, was though considered application of income in the hands of donor trust but was not considered as income of the recipient trust. Trusts, thus, engaged in giving corpus donations without actual applications.

14.4 Therefore, a new Explanation has been inserted to section 11 of the Income-tax Act so as to provide that any amount credited or paid, out of income referred to in clause (a) or clause (b) of sub-section (1) of section 11, being contributions with specific direction that they shall form part of the corpus of the trust or institution, shall not be treated as application of income.

14.5 A proviso has also been inserted in clause (23C) of section 10 of the Income-tax Act so as to provide similar restriction as above on the entities exempt under sub-clauses (iv), (v), (vi) or (via) of said clause in respect of any amount credited or paid out of their income.

14.6 Applicability: These amendments take effect from 1st April, 2018 and will, accordingly, apply from assessment year 2018-19 and subsequent assessment years.

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