[Opinion] Voluntary Donation vs Corpus Donation – Comparative Analysis & Aspects of Donation Received in Kind
- Blog|News|Income Tax|
- 3 Min Read
- By Taxmann
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- Last Updated on 27 December, 2023
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CA Naresh Kumar Kabra & Amit Gupta – [2023] 157 taxmann.com 553 (Article)
“Your donation plants seeds of change”
Introduction
Charitable institutions play a pivotal role in addressing societal challenges and promoting the well-being of communities. The primary strategies employed by these organizations to raise funds are Voluntary Contributions (without specific direction) and Corpus Donations. These donations can be in form of cash or kind.
This article will delve into dynamics of both the donations and will throw the lights on treatment of donation received in kind.
Donation and Its Types
Section 2(24)(iia) and section 11(1)(d) of Income Tax Act, 1961 uses the term “contribution”.
As per Section 2(24)(iia) of the Act, income shall include voluntary contributions received by a Trust or Institution created wholly or partly for charitable or religious purpose.
In general parlance, donation is a gift of cash or kind made to a charitable institution to help it accomplish its goals, for which the donor receives nothing in monetary value as return.
Types of Donations
1. Voluntary Contribution (without specific direction)
Any contribution received by a charitable institution, without specific direction to form it as part of corpus, can be considered as voluntary contribution. As per section 12(1) of the Act, such contribution shall be considered as income derived from property held under Trust.
The Trust, as a recipient, can use these contributions for carrying out its activities and activities incidental thereto as listed out in section 2(15) of the Act.
2. Corpus Donation
The donation received by the Trust with specific direction from the donor, to form it as part of corpus can be termed as corpus donation.
These funds can be utilised only for the specific purpose for which the direction has been received from the donor.
| Basis of Difference | Corpus Donation | Voluntary Contribution not forming part of corpus |
| Meaning | Voluntary contributions with a specific direction to form part of corpus of trust or institution. | Voluntary contribution which are freely available to the institutions without any stipulation, which the assessee can utilize towards its objective. |
| Taxability | Exempted u/s 11(1)(d) of the Act | Forms part of income from property held under trust, therefore, 85% should be applied and the shortfall, if any, shall be taxable at normal slab rates. |
| Compliance to kept it in 11(5) mode | Corpus should be kept in 11(5) mode | No such specific requirement |
| Conditions | Corpus donations often come with specific agreements or legal conditions, determining how the donated funds are managed, invested, and utilized. | These donations are typically given openly and with the donor’s identity disclosed. They can be made to various causes, such as charities, non-profits, or specific community initiatives. |
| Donation to other Trusts considered as application | Donation made out of corpus to other charitable institutions shall not be considered as application. | Voluntary donation made to other charitable institutions shall be considered as application but only to the extent of 85% of the value (From A.Y. 2024-25) |
Section 11(1)(d) of the Act, exempts corpus donations received by the Trust. But as per the amendment made in section 11(1)(d) vide Finance Act, 2021, the amount of corpus donation will be taxable, unless it is invested in forms or modes specified in section 11(5) of the Act. Hence investment of corpus donation in modes specified under section 11(5) of the Act is mandatory condition to claim it as exempt.
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