TAXING DONATIONS MADE BY ONE CHARITABLE OR RELIGIOUS INSTITUTION TO ANOTHER


Get In Touch Get In Touch ×


	Home About Us Team Services Audit and Assurance Risk Management & Internal Business Advisory Mergers and Acquisitions Valuations and business modelling Insolvency Resolutions Tax Advisory & Regulatory International Taxation and FEMA Project Finance Succession Planning Handholding CSR Impact Assessment and Social Audits ESG Advisory Blog Knowledge Bank Calculators GST Calculator Tax Calculator TDS Calculator Calculate Net Profit Calculate Net Worth Effective Capital HRA NSC EMI Auto Loan Calculator Home Loan Calculator Get No. Of Installment RERA Calculator Developers Calculator Home Buyer Delay Interest Home Buyer Refund Bulletins RBI SEBI Notification Circular Income Tax Service Tax Central Sales Tax Excise Matters Customs Company Law Labour Laws FEMA The LLP Act 2008 Accounting Standard (INDAS) Others GST VAT Delhi VAT Maharastra VAT Gujarat VAT Telangana VAT Tamil Nadu VAT IGST UTGST Compensation Cess IBC Regulation Utilities Rates of TDS TDS Rates for N.R.I us 195 Rates of Income Tax Depreciation Rates Companies Act Depreciation Rates Income Tax Act ROC Filing Fees (Cos Act, 2013) ROC Fee Structure (Cos Act, 2013) Cost Inflation Index IFSC Codes MICR Codes Rates of NSC Interest Gold and Silver Rates Rates of Stamp Duty LLP Fees National Industries Classification HSN Rate List Deduction u/s 80TTA Vs 80TTB Acts Direct Tax Income Tax Act Wealth Tax Act Income Declaration Scheme 2016 Indirect Tax Service Tax(Finance Act, 1994) Central Sales Tax Act, 1956 The Central Excise Act, 1944 Customs Act, 1962 Entry Tax Act Corporate Laws Companies Act, 2013 Companies Act, 1956 LLP ACT SEBI Act, 1992 VAT Laws Delhi Value Added Tax Act, 2004 MVAT Act, 2002 West Bengal VAT Act, 2003 Tamilnadu VAT ACT, 2006 Karnataka Value Added Tax Act, 2003 Gujarat Value Added Tax Act, 2003 UP VAT Act, 2008 Rajasthan Value Added Tax Act, 2003 Punjab Value Added Tax Act Haryana Value Added Tax Act Telangana VAT Act 2005 Andhra Pradesh VAT Act, 2005 Bihar Value Added Tax Act, 2005 Other Statutes ESI Act, 1948 PF Act, 1952 Profession Tax Act The Indian Partnership Act, 1932 Societies Registration Act, 1860 Competition Act, 2002 Reserve Bank of India Act, 1934 MRTP Act, 1969 Equalisation Levy Act, 2016 Right To Information Act, 2005 FEMA, 1999 Maharashtra RERA RERA, 2016 Insolvency & Bankruptcy Code, 2016 Benami Property Act 1988 GST Laws IGST Act , 2017 CGST Tax Act, 2017 UTGST Act, 2017 GST (Compensation to States) Act Rules Direct Tax Rules Income Tax Rules Wealth Tax Rules 1957 Income Declaration Scheme Rules 2016 Indirect Tax Rules GST Valuation Rules , 2016 Service Tax Rules CST (Delhi) Rules, 2005 CST (Maharashtra) Rules Customs Valuation Rules Cenvat Credit Rules, 2017 Entry Tax Rules Corporate Laws Rules Companies Rules, 2014 LLP Rules, 2009 LLP Winding up Rules, 2012 Cos Unpaid Dividend Rules, 1978 VAT Laws Rules Delhi VAT Rules, 2005 Maharashtra VAT Rules, 2005 West Bengal VAT Rules, 2005 Tamilnadu VAT Rules, 2007 Karnataka VAT Rules, 2005 Gujarat VAT Rules, 2006 Uttar Pradesh VAT Rules, 2008 Rajasthan VAT Rules, 2006 Punjab VAT Rules Haryana VAT Rules, 2003 Telangana VAT Rules 2005 Andhra Pradesh VAT Rules, 2005 Bihar Value Added Tax Rules, 2005 Other Statutes Profession Tax Rules NBFC Deposits Directions, 1998 NBFC & Misc NBC (Advt) Rules, 1977 NBFC Auditor Report Directions, 2008 Delhi Labour Welfare Fund Rules, 1997 Cost records and audit Rules, 2014 Baggage Rules, 2016 Equalisation Levy Rules, 2016 NCLT And NCLAT Rules Insolvency & Bankruptcy Rules Benami Property Rules, 2016 GST Rules CGST Rules, 2017 IGST Rules 2017 Forms Income Tax Forms ROC Forms (Cos Act, 2013) ROC Forms (Cos Act, 1956) Income Declaration Forms Wealth Tax Forms Service Tax Forms Companies Unpaid Dividend Forms NBFCs Forms LLP Winding up FEMA Forms LLP Forms CGST Forms GST Forms Accounts and Records Advance Ruling Appeals and Revision Assessment and Audit Composition Demands and Recovery Input Tax Credit Inspection, Search and Seizure Offences and Penalties Payment of Tax Refund Registration Returns Transitional Provisions Value of Supply Careers Contact Us

Blog Categories

TAXING DONATIONS MADE BY ONE CHARITABLE OR RELIGIOUS INSTITUTION TO ANOTHER
Category: Income Tax , Posted on: 26/09/2023 , Posted By: KPB

Visitor Count:263

Background

In the world of philanthropy, well-known charitable or religious institutions often receive the most donations. This is because they have a wider reach and are more recognized in philanthropic circles. However, this means that lesser-known charitable or religious institutions may receive fewer donations, even if they are doing important work at the grassroots level. To address this disparity, well-funded trusts often donate to smaller trusts.

This alert explores the tax implications of donations made by one charitable or religious institution to another in India. It outlines how recent amendment under the Income Tax Act of 1961 (the Act) may cause undue hardship on the grant of donations by one charitable or religious institution to another.

Restriction on donations made by one trust to another out of the income of the current year

Upto 31st March 2023, 100% of the amount of any donation made by one trust to another out of the income of the current year was considered to be an application of income for the donor trust. However, effective from 1st April, 2023 this has now been reduced to 85%.

This amendment applies to both charitable organizations and organizations established for religious purposes, irrespectively whether the recipient charitable or religious institutions applies the donation towards its activities carried on by itself or through anyone else.

To illustrate, the Established Foundation (donor) has granted a donation of Rs 2,00,000/- to the New Foundation (donee) -

Particulars	Upto 31^st March, 2023	Post 01^st April, 2023
Income from property held under the Trust	Rs. 10,00,000	Rs. 10,00,000
Donation to other Trusts	Rs. 2,00,000	Rs. 2,00,000
Less: Donation to other Trusts allowable as a deduction	Rs. 2,00,000	Rs. 1,70,000 (85% of Rs. 2,00,000)
Less: Other Charitable & Admin Expenses	Rs. 6,50,000	Rs. 6,50,000
Less: Exemption of 15% u/s. 11(1)(a)	Rs. 1,50,000	Rs. 1,50,000
Income subject to tax after exemption	Rs. NIL	Rs. 30,000

Thus, post amendment, Established Foundation will be subjected to tax @ 30% on the entire amount of Rs. 30,000/- u/s. 115BBI of the Act without the basic exemption limit.

Revenue Justification

It is stated that the reason for this amendment is to prevent trusts from avoiding paying tax by simply donating their income to other trusts. Any Charitable or religious institution is required to apply at least 85% of its total income. On application of 85% of its income, the balance of 15% is tax-exempt and allowed to be accumulated without any restrictions.

The legislative intent of the amendment is to deter trusts from circumventing the 85% application of income requirement by forming multiple trusts and accumulating the 15% at each layer. This practice, known as "cascading trusts," allows trusts to reduce the amount of income that is actually applied to charitable or religious activities. By forming multiple trusts, each of which applies only 85% of its income, the effective application of income can be reduced to a much lower percentage.

Implications

The amendment aims to prevent this practice by limiting the amount of donation that can be considered as application of income to 85%. However, amendment leads to creating undue harassment to the donor trust.

Firstly, where the donor trust intends to avoid payment of tax, it will have to spend, an additional sum equivalent to 15% of the donation so made to the donee trust, towards the activities of the donor trust.

Where the above option is not viable, the donor trust will have to pay tax.

However, where the donor trust, being a charitable or religious institution, has spent the whole of their income received during the year, it is left with no funds, either to pay the tax or to spend the additional amount of 15% which is not being allowed as a deduction.

Thus, the new provisions inadvertently impede the operations of smaller charitable or religious institutions that are making a significant impact at the grassroots level.

To download the above, click here.

Disclaimer: The content of the blog does not create any responsibility of the firm / its authorized persons whose website is being accessed. The blog is not for legal use. Kindly verify the correctness of data/contents from your own sources. This is only for information purpose.

Get In Touch

Blog Categories

Add a Comment