CBDT Issues a Clarificatory Circular on FA 2023 Amendments Pertaining to Inter-Charity Donations
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- Last Updated on 7 March, 2024
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Circular 3/2024, dated 06-03-2024
Income of trusts and institutions mentioned under section 10(23C) or trusts or institutions registered under section 12AA or 12AB is exempt from income tax provided certain conditions are fulfilled. These conditions include applying 85% of their income either by themselves or by making donations to the trusts with similar objectives. Further, the donation should not be made to the corpus.
In order to ensure intended application towards charitable or religious purposes, the Finance Act 2023 amended sections 11 and 10(23C) effective from the assessment year 2024-25. The amendment stipulates that when a trust or institution registered under Section 12AB makes eligible donations to another trust or institution registered under Section 12AB or approved under Section 10(23C), only 85% of the donation amount will be considered as the application of income.
In simpler terms, if one charitable organization gives a grant of Rs. 100 to another charitable organization, only Rs. 85 will be counted as the application of income. Consequently, this change sparked controversy regarding the potential tax liability associated with the remaining Rs. 15.
The Central Board of Direct Taxes (CBDT) received various representations raising concerns about whether the balance of 15% of the donation to another trust or institution would be taxable or is eligible for 15% accumulation since the funds would not be available having been already disbursed.
Therefore, the CBDT released a circular clarifying the treatment of such donations made wherein it is clarified that 15% (Rs. 15) of such donations by the donor trust or institution shall not be required to be invested in specified modes under section 11(5) of the Act as the entire amount of Rs. 100 has been donated to the other trust or institution and is eligible for exemption.
Click Here To Read The Full Circular
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